|Growth In China Is Expected To Slow|
The main reason China's headline growth has appeared so resilient up until now is that government policy has focused on the banking sector rather than corporate debt reduction or deleveraging. With the GDP expanding at a steady 6.8 percent for three straight quarters many China watchers have been optimistic China's multi-prong crackdowns on pollution, questionable local government spending and off-balance sheet “shadow” financing was moving along without a hitch. Of course, most of those projecting huge future growth point to OBOR and the powerful engine of infrastructure spending to pull the economy forward and even the fact this slowed to 9.4 percent in the first five months, from 12.4 percent in January-April and warnings from the IMF of malinvestments do little to dampen their enthusiasm.
|Credit And Debt Drive China's Growth|
Trade stood out as a bright spot in China's latest numbers but the threat of rising trade tensions with the United States could end that and exporters front-loading their shipments may have added to those numbers. Still, key to what happens is the policy of the central bank (PBOC) where recent easing measures appear to have had little positive impact on the economy. To some extent the PBOC is trapped, it can't hike over fears of slowing down the economy too far, and it can't ease or else risk another round of capital outflows and a spike in inflation. It is interesting how turmoil in Europe caused by problems flowing from Italy, the summit between Trump and Kim, and rumblings in emerging markets have temporarily taken eyes off of China.
In the past, the massive amounts of new credit being created in China have caused havoc in markets across the world and pushed up total debt to dangerous levels. This is all occurring at a time when the amount of geopolitical upheaval going on between Washington and Beijing is extremely high and a slew of trade data from China has not been released on time. This has increased concern over the lack of transparency of future data releases and has caused suspicion to grow over Chinese intent and if they are hiding something. If indeed, things that happen in China do not stay in China, then we should be prepared to see any problems or mishaps in China to spread and ripple outward to infect global markets.
Footnote; For more on China see the links posted below.