Simply Saying ‘China’

When it comes to tail risks, there's inflation, there's China and then there's everything else. That was the view from 430 participants in the October vintage of BofA's Global Fund Manager survey, which I've referenced quite a few times over the past 24 hours. This month's edition was, to my mind anyway, simply more interesting than most installments of the widely-followed poll. Normally, I'd chuckle at the absence of specifics. There's no nuance. Typically, we need nuance. Not with inflation

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3 thoughts on “Simply Saying ‘China’

  1. The CCP controls the banks, provincial govts, and private companies to varying but substantial degrees, so it has granular, targeted and subtle ways to “ease”.

    In recent weeks, the government has
    – Directed banks to step up lending to property developers
    – Directed provincial govts to ensure that housing projects get completed
    – Directed property developers to pay their debts
    – Directed wealthy founders to stand behind their companies’ obligations

    “Direction” takes different forms, sometimes it’s merely “encouragement” or “exhortation”, and many directives won’t be reported in the media reports we read. It is hard to believe that CCP officials aren’t picking up the phone and making strong suggestions to various persons and entities, that will never ever be publicly disclosed.

    This looks like an effort to support the property industry and asset class without explicitly bailing out the basket cases (Evergrande, etc) or their creditors broadly writ (though the ones that matter will probably get land or other assets from the carcass), and without resort to economy-wide stimulus/easing through LPR etc.

    Similarly with the power crisis, the CCP didn’t use broad macro-financial levers; it ordered power companies to secure coal at any cost, released Australian coal from warehouses, and raised price caps.

    As China reverts to more of a command economy, which is a plausible read of what is happening, it should have increasing alternatives to the “conventional” central banking tools like broad lending rates, yuan fix, reserve requirements, etc. Not that it won’t use those too, but if a problem is perceived to be specific to an particular industry, maybe industry-specific levers will be pulled instead.

NEWSROOM crewneck & prints