China Reaches Pain Threshold. Easing Cycle Seen Underway

China Reaches Pain Threshold. Easing Cycle Seen Underway

After spending the better part of a year engineering a series of overlapping crises in the name of long run stability, China is now pivoting to easier monetary policy in the interest of near-term stability. I'm not sure "ironic" is the right word. Often, laying the groundwork for achieving long-term goals entails suffering of some kind in the here and now. At the least, it typically requires forgoing decadence today in the name of ensuring tomorrow is safe, comfortable and generally secure. If
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2 thoughts on “China Reaches Pain Threshold. Easing Cycle Seen Underway

  1. I see the narrative that the “overlapping crises” are manufacture, which would mean the challenges are a pre-meditated strategy to ostensibly reset the “excesses” of capital markets. It makes sense, it’s a straight forward read on the situation. But I don’t believe the narrative to be true.

    I see the recent policy, tightening into a slow down, as reactionary, a panicked and forced reaction. It tells me that China is hyper sensitive to higher interest rates. With all the recent articles about how the US financial system cannot digest persistently high interest rates, China’s interest rate problem is far more acute.

    My other take away is that Xi and the party know how bad the real estate bubble is, from the inside. They know a lot more than we do. More and more, Evergrande is looking to be the Bear Sterns moment of the in-process collapse of the Chinese real estate market. Now that I’m old enough to have lived through a few market crashes and having studied it; crashes play out over time until it’s too late and then the crash gets reflected in everything as contagion sets in.

    Xi’s panicked reaction is an attempt to forestall the inevitable. This while putting lipstick on a pig so that Xi can now blame the “capitalist pigs” for the Chinese economy crashing some time next year.

  2. The best laid plans often go awry. We will see what we see. Maybe the credit impluse is turning or maybe policy is still too tight and who knows whether you can actually make a transition from a property dominated one to one driven by investment in green energy…Such transitions would seem rather difficult without encountering bumps in the road…

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