2013-07-05

More Pain For Over Leveraged Chinese Firms

If anyone was doubting the Chinese government would not follow through with current economic reforms, here's the proof:

China signals will cut off credit to rebalance economy
In a statement from the State Council, or cabinet, Beijing laid out broad plans to ensure banks support the kind of economic rebalancing China's new leadership wants as it looks to focus more on high-end manufacturing.

President Xi Jinping and Premier Li Keqiang have flagged for some time that the rapid growth of the past three decades needs to shift down a gear, and analysts said Friday's announcement was a signal that they intended to press on with reforms despite evidence of a sharper-than-expected slowdown.
The policy is the right one. The error comes from those who believe the Chinese can control the economy. Central planners can direct it, but they cannot control it or violate the laws of nature. This is going to be a multi-year restructuring and any misstep could precipitate a crisis. The government is likely to step in and try to head off a collapse in real estate or other markets, but the linchpin of the bubble economy is debt. As long as they keep credit tight, there is the constant risk of a volatile implosion of bubbles, and as long as they forestall the popping of these bubbles, they remain extant.

No comments:

Post a Comment