Why Western economies have budget crises and China doesn't

Naturally this did not mean that China escaped all economic problems. The size of a stimulus package can never be judged perfectly in advance. The crucial thing in 2008, confronted with the worst economic crisis for eighty years, was to act rapidly and forcefully to head off downturn. This was achieved.

Indeed, so successful was the stimulus that by the 2nd quarter of 2010 China's GDP growth was 11.9 percent – well above the average since its economic reforms began and unsustainably high. Also, despite the government's best effort, it is always impossible to prevent some part of a stimulus spilling into unintended areas and China's house prices began rising too fast.

In summer 2010 world food price inflation also began. China suffered from this less than other comparable BRIC countries – Brazil, India and Russia. But countering these price rises required monetary tightening and slowing the economy

Finally, a medium term problem must be tackled. It is impossible to implement a huge lending increase, under conditions of international economic downturn, without some increase in bad loans. When China's government launched the 2008 stimulus package it anticipated this by making banks increase provisions for bad loans and stating they would have to raise extra capital. The government's calculation was simply that large scale economic growth resulting from its policies would generate more than sufficient resources to deal with any bad loans problem of the type now appearing in municipal debt – i.e. far more would be gained than lost. With more than 30 percent growth in three years China's economy has easily enough resources to deal with bad loans.

In short China's economic structure does not produce perfection – which only exists in heaven. But the problems it faces are far smaller than the budget deficit and debt crises in Europe and the US.

China's economy grew by more than 30 percent in three years while Europe and the US remain below their peak levels of output. It is therefore easy to see which policy has been more successful. In short, when China's government spoke of the superiority of its economic structure this was not words. It is the literal truth.