Perhaps I’m wrong but today it looks to me like China is heading into a hard landing. There are three stories that you must read to make this case. Happily, all three are available at MacroBusiness.
The first is Zarathustra’s description of the monetary pain that is growing in China. It describes the capital outflow and weak credit demand hitting the banks.
The second is by Henry Thornton and describes BHP’s total strategic backflip. Managed under the wondrously Orwellian title of “A well defined strategy”, BHP is moving from mass investment of shareholder funds to mass return of shareholder funds with an emphasis on investment “flexibility”. Code for pulling projects.
The third and most important is Patrick Chovanec’s China real estate unravels, which is, without putting too finer point on it, vital to your health that you read.
Once you read these three pieces, ask yourself the following question: why has the People’s Bank of China (PBOC) not yet cut interest rates into the teeth of this growing downdraft? Inflation is no longer a problem so I come up with only one answer: they want it to happen.
I know, I know, every Western analyst says the same thing. The ruling Chinese Communist Party (CCP) derives its legitimacy of rule from ongoing prosperity. They can’t therefore let things get out of hand.
Perhaps it’s true.
Then again, perhaps it isn’t. There are two alternatives.
The CCP and PBOC can make a mistake.
Or, it may just be that ever inflating and grossly unaffordable property for the great mass of Chinese people is not a part of the charter of communist managed prosperity.
Say what?
