by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Kevin Williamson‘s latest column at National Review Online details government-induced problems plaguing the American and Chinese economies.
Jiang Jianqing is the boss at the Industrial and Commercial Bank of China (ICBC), which bought a few private jets a while back — with your money. As the invaluable Timothy Carney explains, this was another in the Export-Import Bank’s long line of shenanigans. ICBC, the largest bank in the world, set up a leasing company to buy the jets from Hawker Beechcraft, which was at the time owned by Goldman Sachs. The Export-Import Bank offered sweetheart financing to make the deal happen. As Carney summarized: “The U.S. taxpayer was lending money to the largest bank in the world (owned by the Chinese government) to buy corporate jets from Goldman Sachs.”
That is a sentence that makes me feel like I need a shower.
But the Chinese bankers may want to make sure that those jets last: It could be a while before they’re in a position to buy new ones.
China, as you may have heard, is experiencing some economic difficulties, in no small part because most of the Chinese economy operates approximately like the U.S. Export-Import Bank or the federal student-loan program: Money is lent on concessionary terms to make transactions happen for politically favored businesses and investors on the theory that the resulting economic activity will be worth the costs. And it’s fairly easy to get away with that arrangement, because the costs are disguised as profits: A loan made at a below-market rate is a wealth transfer, but in the government ledger it looks like income. Simple example: If the U.S. government were to lend me $1 billion for 20 years at 1 percent interest, I’d be a very, very happy man, and even if I earned only modest returns on that $1 billion, I’d have around $1 billion in my pocket after paying back the original loan. In effect, the government would have given me $1 billion, but on the books it would look like it had instead earned more than $100 million in 20 years. That’s because government is accounting only for the interest I paid, not the interest it could have earned if it had lent the money at the market rate.