But some think the current actions by the government are not harmful. Lu Ting, an economist at Bank of America Merrill Lynch, quoted by the Financial Times is one in that camp:
"The major driver is Beijing's stimulus measures focusing on increasing spending on railway and social housing with its own money.
The negative impact of the stimulus on the financial system is thus relatively small."
seems to recognize the difference in risk between private debt and government debt when their is a sovereign currency involved.
But Lu Ting's
assurances seem somewhat fickle as Chinese bank loans and other forms of credit grew at their fastest pace for three months in June. In addition, fixed asset investment (+17.3%) real estate investment (+14.1%) are still growing faster than retail sales (12.4%). A rebalancing away from very high investment and toward more consumption is the generally recognized reform that is need to keep the Chinese economy from crashing. Until investment growth and consumption growth at least reach the same level the rebalancing is getting further unbalanced.