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Who is Lending to China?


With all the talk about China financing the US debt, one would think the Chinese are running a budget surplus. They’re not. The Chinese government appears to be afflicted with neo-Keynesian foolishness, too:

China announced Thursday a fiscal deficit budget of 950 billion yuan (139 billion U.S. dollars) for 2009, a record high in six decades, as the country boosts spending to cushion the impact of the global financial crisis.

The total deficit accounts for less than 3 percent of China's gross domestic product (GDP), said Premier Wen Jiabao at the opening of the parliament's annual session.

Despite the deficit surge, China's constant deficit drops in previous years provide room to issue more bonds this year, said Wen in his government work report to the second session of the 11th National People's Congress (NPC).

Their deficit is currently less than 3% of GDP, compared to the US at 12% and rising. At 3%, the Chinese deficit may be within a range where Keynsian theory can appear effective. But the Chinese apparently aren’t following the theory anyway.

Neo-Keynesians recommend budget deficits during recessionary times to counteract diminished consumer demand. The article, however, reports that China has been running a persistent deficit during all the 2000s boom.

So, if China has been financing US debt, who has been financing the Chinese?