China's economic prospects

Samizdata Illuminatus has some interesting thoughts on the recent economic disruptions emanating from China:

In spite of a widespread belief in China's embrace of free-market capitalism, enormous economic distortions characterise modern China's economy. For example, why is it that, relative to China's economic footprint, the Chinese stock market is rather pathetically stunted — especially in light of the vast savings pool the Chinese people have accumulated? As mentioned in the above article, the Chinese are great savers and they tend to deposit these savings into bank accounts because alternative investment opportunities are limited compared to those offered to a Western investor. Consider the following:

Why does the Chinese investor not sink his surplus funds into foreign commodities? Because he is restricted from doing so.

Why does he not invest in Chinese stocks? Because he (probably correctly) views the Chinese stock market as being distinctly ropey.

In light of these state-imposed distortive realities, what does one do with one's savings? One puts them in the bank, of course. Predictably, the banks are awash with deposits. Under these circumstances, the principles of fractional reserve banking have been taken to the extreme in China, allowing the central government to durably zombify huge segments of the otherwise bankrupt state-owned industrial sector by forcing the "big four" state-owned banks to continuously loan depositors' money to these failed state enterprises, in the full knowledge that these loans will never be repaid.

Of course, you'd expect me to be bearish on the Chinese economy, based on things I've posted before.