### Summary
The risk of a "real Lehman moment" is increasing in China due to a shadow banking crisis and declining property sales, according to Jefferies' global strategist Chris Wood.
### Facts
- 💣 Chinese asset manager Zhongzhi Enterprise's failure to make interest payments on wealth management products indicates a liquidity crisis and highlights the real estate sector's crisis.
- 💰 Chinese equities are a value trap, says Wood.
- 🏢 Evergrande's problems were not a "Lehman moment" because they were induced by the authorities through the "Three Red Lines" policy.
- 🚫 President Xi Jinping's anti-corruption campaigns and last year's lockdowns have dampened entrepreneurial spirits and damaged China's command economy model.
- 📉 The residential property market's biggest downturn since privatization in the mid-1990s was undermined by lockdowns, even after the relaxation of the "Three Red Lines" policy.
- 💼 For those who believe China is in a "balance sheet recession," owning a dividend index and long government bonds is a recommended strategy.
### Summary
China's central bank, the People's Bank of China (PBOC), has announced that it will coordinate financial support to address local government debt problems, as concerns grow over the spillover effects of the country's property crisis on its financial system.
### Facts
- 🏢 China's central bank, the PBOC, will coordinate financial support to resolve local government debt problems as the country's economy faces downward pressure.
- 📉 China unexpectedly lowered interest rates last week to boost economic activity, but analysts believe that more forceful measures are needed.
- 💰 Financial departments are urged to support local debt risk resolution, enhance debt risk prevention and resolution tools, strengthen risk monitoring, and prevent systemic risk.
- 📝 China's Politburo has stated its focus on preventing local government debt risks, but no specific plans have been announced yet.
- 💸 Analysts believe that a coordinated rescue package may involve additional funding, refinancing channels, debt swaps and extensions, and possible debt restructurings.
- 💼 Debt-laden municipalities pose a significant risk to China's economy due to over-investment in infrastructure, plummeting returns from land sales, and high costs related to COVID-19 containment.
- 🏦 The PBOC meeting also emphasized the need for banks to increase lending and support the real economy, particularly the property sector, small firms, technology innovation, and the manufacturing sector.
- 💳 However, consumers and businesses may not be willing to spend or borrow given the uncertain economic climate.
- 💸 New bank lending in China fell to a 14-year low in July.
### Summary
China's central bank has announced that it will coordinate financial support to address local government debt issues, aiming to stabilize the economy and reassure investors amidst concerns of a property crisis spillover.
### Facts
- 🏦 China's central bank, the People's Bank of China (PBOC), will coordinate financial support to resolve local government debt risks.
- 🏢 China's property crisis is deepening and posing risks to the financial system.
- 💰 China unexpectedly lowered key interest rates and is expected to cut prime loan rates on Monday.
- 💼 Financial departments are urged to coordinate support, prevent debt risks, strengthen risk monitoring, and avoid systemic risk.
- 📜 China's Politburo has reiterated its focus on preventing local government debt risks.
- 💸 Bloomberg reported that China plans to offer local governments a combined 1 trillion yuan ($137 billion) in bond issuance quotas for refinancing.
- 🔍 Analysts suggest a coordinated rescue package could involve additional funding, refinancing channels, debt swaps, payment extensions, and debt restructurings.
- 💵 Debt-laden municipalities represent a major risk to China's economy and financial stability.
- 📉 The property sector slump has worsened local government finances and caused developers to default on debts.
- 🤝 Fitch Ratings expects the central government to avoid outright bailouts to maintain debt reduction efforts.
- 👥 The joint meeting attended by PBOC officials urges banks to increase lending for the real economy.
- 💳 The PBOC will optimize credit policies for the property sector and strongly support small firms, technology innovation, and the manufacturing sector.
- 💼 Many consumers and companies are reluctant to spend or borrow due to the uncertain economic climate.
- 📉 New bank lending in China fell to a 14-year low in July.
### Summary
China's central bank will coordinate financial support to address local government debt problems and prevent systemic risk, as concerns grow over the impact of the country's property crisis on the financial system.
### Facts
- China's central bank, the People's Bank of China (PBOC), will coordinate financial support and tools to prevent and resolve local government debt risks.
- China's deepening property crisis has raised concerns of a spillover into the financial system.
- China unexpectedly lowered interest rates last week and is expected to cut prime loan rates to stimulate economic activity.
- The Politburo has emphasized its focus on preventing local government debt risks but has not announced specific plans yet.
- China may offer local governments 1 trillion yuan ($137 billion) in bond issuance quotas for refinancing.
- A coordinated rescue package could involve additional funding, debt swaps, payment extensions, and debt restructurings.
- Debt-laden municipalities pose a major risk to China's economy and financial stability.
- Fitch Ratings expects the central government to avoid outright bailouts of troubled municipalities.
- The central bank urged banks to increase lending and optimize credit policies for the property sector, small firms, technology innovation, and the manufacturing sector.
- However, consumer and company spending and borrowing remain low due to economic uncertainty.
- New bank lending in July fell to a 14-year low.
### Summary
Growing concerns about global economic growth and uncertainties in monetary policy have led to turbulence in financial markets, with rising bond yields and a decline in equity markets. Key factors affecting growth include interest rates, bond yields, and access to funds, which may result in a credit crunch and a more risk-averse environment in capital markets. China's shift towards self-sufficiency, combined with a more prudent policy environment, slower population growth, and trade sanctions, will lead to slower and more erratic growth in the country. Although there are near-term concerns, the longer-term outlook for global growth remains positive.
### Facts
- Global economic growth is a concern, reflected in rising bond yields and a decline in equity markets.
- Policymakers, particularly in the US, are worried about overtightening monetary policy.
- Western economies, including the UK, have proven resilient despite expectations of a recession.
- Lower inflation will boost spending power, but growth will depend on where interest rates and bond yields settle.
- Businesses face challenges in raising funds due to a credit crunch, tough lending conditions, and a risk-averse capital market environment.
- The International Monetary Fund forecasts global growth to slow from 3.5% last year to 3% this year and next, with Asia being a major driver.
- Concerns about deflation in China exist, but low inflation is more likely.
- China's shift towards self-sufficiency in response to trade wars has coincided with a more prudent policy environment and the need to curb inflation and manage debt overhang.
- A shrinking population and structural changes in China will result in slower and more erratic growth.
- Private sector activity remains strong in Asia, and Japan's economy is experiencing an economic rebound.
- Western economies previously experienced a prolonged period of cheap money, which led to imbalances and misallocation of capital.
- Prudent monetary policy in some emerging economies provides more room to act in response to economic weakness.
- Concerns exist regarding rising policy rates in the US, UK, and euro area and the tightening of central banks' balance sheets.
- The definition of a risk-free asset is being questioned, as government bonds, previously considered safe, have witnessed negative total returns.
- There has been a rise in shadow banking and non-bank financial institutions, with collateral in the form of government bonds playing a crucial role.
Overall, the focus is shifting from inflation to growth, and future policy rates may need to settle at a high level. High levels of public and private debt globally limit policy maneuverability and expose individuals and firms to higher interest rates.
China's economy is facing a downward spiral due to a crisis in the debt-laden property sector, prompting seven city banks to reduce their growth forecasts for the country; concerns include falling into deflation, high unemployment rates, and the need for more proactive government support.
China is making efforts to restore confidence among businesses and consumers after crackdowns on the private sector and harsh Covid restrictions have negatively impacted its economy.
Beijing needs to provide clarity on its economic plans and the national security crackdown in order to rebuild confidence in the future trajectory of China and address uncertainties, according to the head of a European business lobby in China.
China's economy is facing challenges with slowing growth, rising debt, tumbling stock markets, and a property sector crisis, and some analysts believe that heavy-handed government intervention and a lack of confidence are underlying causes that cannot be easily fixed. However, others argue that China's problems are solvable and that it remains a superpower despite its considerable problems.
China should resist the urge to use monetary easing to combat deflation and focus instead on market-driven restructuring and real economic activities in order to achieve healthier and more sustainable growth, according to economist Andy Xie. Japan's reliance on quantitative easing and zero interest rates has perpetuated asset bubbles and hindered innovation and productivity, serving as a cautionary tale for China.
Global investors are urging China to increase spending in order to revive its struggling economy and address the deepening property crisis, as modest interest rate cuts and vague promises of support have failed to restore confidence in the market. Investors are demanding more government stimulus before considering a return, and the lack of a policy response from Beijing has raised concerns among fund managers. The wishlist of investors includes increased government spending, particularly for local governments and banks, as well as measures to address the property sector crisis and improve communication regarding private business interests.
China faces challenges in rebalancing its economy towards increased consumer spending due to the economic growth model that relies heavily on investment in property, infrastructure, and industry, as well as the reluctance of households to spend and the limited social safety net; implementing demand-side measures would require difficult decisions and potential short-term pain for businesses and the government sector.
China's economic slowdown, coupled with a property market bust and local government debt crisis, is posing challenges to President Xi Jinping's goals of achieving economic growth and curbing inequality, potentially affecting the Communist Party's legitimacy and Xi's grip on power.
China is implementing measures to boost household spending, ease property policies, increase car purchases, improve conditions for private businesses, and bolster financial markets in an effort to revive the economy's recovery and improve the business environment.
China's economic model, driven by industrialization and exports, is showing weaknesses with an imbalanced economy, low demand, slumping trade, and a struggling property sector, highlighting the need for structural reforms to boost domestic consumption and confidence.
China's hybrid economic model, which combines state planning with market forces, is facing challenges as the country struggles with weak economic indicators, including high youth unemployment and falling prices, and the property market experiences financial distress due to government interventions and market dynamics; policymakers must implement short-term measures to boost market confidence, such as managing property-sector defaults and easing housing investment restrictions, while also undertaking long-term structural reforms to address moral hazards, promote fiscal responsibility, and protect private businesses and foreign investors.
China needs to fully utilize policy space to bolster economic growth and market expectations by making significant adjustments in fiscal and monetary policies, according to a senior economist and political adviser. The economist emphasizes the importance of sending strong signals to the market and considers options such as interest rate cuts, increased deficit-to-GDP ratio, and infrastructural improvements to address economic challenges caused by global demand stagnation and tightened US monetary measures.
Investors are becoming increasingly concerned about the state of China's economy as informal gauges, such as PMI surveys and soft surveys, indicate a deep-seated confidence problem and a potential miss of the country's 5% growth target this year, leading to a retreat from global assets exposed to the slowdown.
China's economy is experiencing a structural slowdown and becoming increasingly opaque, making it difficult for outsiders to understand the true state of the country's economic affairs, as President Xi Jinping prioritizes ideology over economic growth and transparency.
China's economic slowdown is being caused by a property market downturn, softening demand for exports, and low household spending, which poses risks to financial stability and could lead to deflation and deeper debt problems. Economists are uncertain if the government's current measures, like interest rate cuts, will be enough to boost consumption and meet growth targets. Structural reforms and measures to increase household consumption are needed to address the imbalance in the economy.
China's failure to restructure its economy according to President Xi Jinping's bold reform plans has raised concerns about the country's future, with the possibility of a financial or economic crisis looming and a slow drift towards stagnation being the most likely outcome. The three potential paths for China include a swift, painful crisis; a gradual winding down of excesses at the expense of growth; or a switch to a consumer-led model with structural reforms that bring short-term pain but lead to a faster and stronger emergence.
China's economy is facing a "new new normal" due to a declining population and weak confidence in its post-Covid recovery, prompting calls for systemic reforms to revive growth. The country's aging and shrinking population poses challenges to productivity, consumption, and long-term growth potential, leading major investment banks to cut growth forecasts. Policy adviser Cai Fang suggests relaxing population controls and focusing on expanding consumption as strategies to boost economic growth.
China's economic slowdown is posing a significant challenge to President Xi Jinping's agenda, forcing him to make difficult choices and potentially relinquish some control over the economy. The slump in housing sales and the crackdown on private capital are among the factors contributing to the economic setbacks, prompting calls for change and a reevaluation of economic policies under Xi's highly centralized leadership. However, Xi seems reluctant to make major changes to his strategy, opting for a hands-off approach and avoiding a big rescue plan for distressed developers and local governments. The central government's control over taxes and the need to revamp the fiscal system further complicate the situation. Restoring government finances while reassuring private investors is a daunting task that requires strong leadership and potentially contentious policy changes. The upcoming Communist Party meetings will shed light on how Xi plans to restore confidence in his economic agenda, but some economists and former officials warn that time may be running out for China to embrace necessary reforms.
China is considering further easing measures in the property market and increasing fiscal support for infrastructure investment to boost economic growth in the fourth quarter, as sluggish demand remains a challenge.
China's economic growth has slowed but has not collapsed, and while there are concerns about financial risks and a potential property crisis, there are also bright spots such as the growth of the new energy and technology sectors that could boost the economy.
Policymakers expect slower growth in China, potentially below 4%, as the country transitions to a consumption-driven economy, which could have a negative impact on the global economy and alleviate inflationary pressures.
China's central bank will take measures to boost demand, support price rebound, and create a favorable monetary and financial environment to enhance economic vitality, according to an unnamed senior central bank official.
China's economy is facing both cyclical and structural stress, but the government is well-equipped to manage the situation through incremental stimulus and reform, according to U.S.-China Business Council President Craig Allen.
China's economy is facing challenges due to its real estate crisis and high levels of mortgage debt, but the government is hesitant to provide fiscal stimulus or redistribute wealth, instead aiming to rely on lending to avoid a potential recession. Banks have cut interest rates and reserve requirements, but it is unlikely to stimulate borrowing. However, economists predict that policymakers will intensify efforts in the coming months, such as changing the definition of first-time home buyers and implementing property easing measures, to address the economic downturn.
Signs of improvement in China's economy, such as improving credit demand and easing deflationary pressures, may not be enough to stabilize the economy due to bigger concerns of decreasing affordability, tight wages, and rising costs that have not been addressed. A comprehensive policy revamp may be necessary for China's economy to recover.
China's private firms continue to face obstacles, referred to as "hidden barriers," including unequal financing and market access compared to state-owned enterprises, hindering their growth and development, according to Chinese state media. These barriers, along with the muddied government-business relationship and unfair market access, have contributed to the decline in private investment, while state-owned enterprises have seen an increase in investments. Despite efforts to improve the business environment, questions remain about the effective implementation of measures to boost private sentiment and support the struggling private sector.
China's credit is expanding rapidly, with total social financing increasing by over 3 trillion yuan in August, mainly driven by government financing, indicating positive signs of economic stabilization and recovery from the slump in the second quarter. Additionally, recent policy measures, particularly in fiscal and property sectors, are expected to further stimulate the economy.
China will accelerate the introduction of policies to consolidate its economic recovery, focusing on deepening reforms and further opening up, after the economy showed signs of stabilizing, according to state media.
China's President Xi Jinping emphasizes the need for reform and opening up the economy as foreign investors consider leaving, calling for a greater opening up of free-trade zones and a focus on playing by international trade rules. Despite these efforts, China's foreign direct investment has fallen and US businesses remain skeptical due to regulatory uncertainties and geopolitical risks.
China's central bank vows to provide stronger policy support for the economy and maintain a healthy property market, following the rebound of industrial profits in August.
China's central bank, the People's Bank of China (PBOC), plans to implement monetary policy with precision and force to support the recovering economy as it faces challenges such as insufficient demand, high inflation, and a complex external environment. They will maintain ample liquidity, stable credit expansion, and guide banks to lower borrowing costs, while also promoting government investment and policy incentives to spur private investment and stabilize the property market.
The International Monetary Fund believes that China's economy can accelerate growth over the medium term through reforming its economy to shift towards consumer spending from investment, although recent data shows signs of stabilization.
China is facing a "grinding" economic slowdown with a narrow path for policymakers to prevent further decline, as its property sector and growth rate enter into structural decline and stimulus measures can only partially offset the weakening consumption and investment. However, it is unlikely to experience a Japan-like stagnation but rather a "Sinification" scenario with 3%-4% GDP growth over the next few years.
China's economic malaise is attributed to a failure to implement necessary reforms, with structural threats to stability increasing and growth expectations diminishing, according to a report by Rhodium Group and the Atlantic Council, which warns that the country's goal of becoming the world's largest economy may be delayed.
China's central bank plans to leverage monetary policies and capitalize on recent economic momentum to boost demand and confidence, with a focus on balancing economic growth and sustainability, according to Pan Gongsheng, governor of the People's Bank of China.
China's economy is expected to slow in the third quarter due to weakened demand, but increased government support may help Beijing achieve its full-year growth target.
The governor of China's central bank has pledged to provide substantial support to the real economy and capitalize on the country's economic momentum to further enhance confidence in its economic recovery.
China's central bank governor, Pan Gongsheng, has stated that China will focus on expanding domestic demand and reducing financial risks in order to promote a sustained economic recovery, while also implementing macro policy adjustments and boosting investor confidence.
