They’re Starting To Panic In China
There's a little bit of panic going on in Chinese policy circles.
When the PBoC cut a key short-term rate for the first time in nearly a year earlier this week, traders assumed China's central bank was marking a transition: Officials have telegraphed an intention to signal the market with the seven-day reverse repo rate going forward as opposed to the rate on one-year policy loans off which China's de facto benchmark lending rates, the one- and five-year loan prime rate tenors, are priced. Both
For years, the Chinese have needed to stimulate domestic consumption. It’s hard work. They need a national retirement solution and health care so their workers have better backstopping and end the gigantic precautionary savings they keep. In the meantime they could try traditional stimulus for consumption until they can put retirement savings and health care plans in place. They have already overinvested in infrastructure and housing. Housing should be backstopped and losses written down in an organized fashion to stabilize their banks. The focus should be elsewhere for increased domestic consumption.
One other thing, exports are a dead end for them as well. They need a rebalanced there. The rest of the world except Russia says a big nyet to that.