NYT: As its Economy Sprints Ahead, China's People Are Left Behind

Barboza, David (October 9, 2011), As Its Economy Sprints Ahead, China’s People Are Left Behind, New York Times:New York

The New York Times, as part of its series on the Chinese Economy, recently published a very interesting article on the nature of Chinese economic growth, its reliance on being driven by large (mostly state owned) enterprises that are in turn reliant on cheap loans from Chinese government owned banks.  No news there; however the interesting point the article makes is that this system runs at the experience of the average Chinese saver (and there are a lot of them in a country that has one of the highest savings rates in the world) in a system that essentially reallocates the country's wealth from China's still relatively poor saving middle class to the wealthy.  This is largely achieved due to the relatively high level of inflation in the country (currently at around 6%) and the low interest rates (currently at around 3%) that banks give to depositors who save with them.  This essentially means ( in a crude calculation) that Chinese depositors are suffering from an unseen tax on their savings (through inflation) of 3% a year.  Money that is essentially used to subsidise these cheap loans that state banks are giving to state owned companies that in turn is playing a role in driving the country's booming housing market and is, in turn, making housing too expensive for most people to afford. 

The full article can be read here: http://www.nytimes.com/2011/10/10/business/global/households-pay-a-price-for-chinas-growth.html?_r=1&ref=business&src=me&pagewanted=all