Sinocism kicks us off:
The financial events of the past few weeks demonstrate that the “tough battle” against financial risks, one of Xi’s three key “tough battles” along with poverty alleviation and pollution after the 19th Party Congress, has not yet achieved victory.
What if Xi has decided they just need to “chew on the hard bones 啃硬骨头” and do a much bigger restructuring and so therefore will tolerate the risks of a financial crisis? Perhaps he believes that the political environment is stable enough and the system has been hardened enough that they can handle the financial and economic damage and social stability problems that will come from a broad debt restructuring, and that they can not effectively transition to “high quality development” without resolving the debt mess? As I wrote yesterday “extreme case scenario thinking 极限思维” can certainly also apply to the risks of a PRC financial system crisis. Yes, that sounds grim (and I am probably crazy for even floating it as a possibility) but given the lack of strong policy response that just about every serious analyst, economist and policy advisor has recommended, can we rule that out? But what if they don’t fully understand both the real amount of debt as well as all the linkages and so don’t understand how defaults may ripple through the system, and what kind of systemic risks they will cause?
