China edges towards more reform

Via the FT:

Xi Jinping instructed China’s state-owned enterprises to lower their debt levels at the weekend but stopped short of announcing the creation of a new financial super-regulator to rein in mounting risks in the sector, as some had expected.

“Deleveraging at SOEs is of the utmost importance,” the Chinese president said at the National Financial Work Conference, which convenes only once every five years. He added that the country’s financial officials must also “get a grip” on so-called “zombie” enterprises kept alive by infusions of cheap credit.

Vigilance against mounting financial risks has become the top policy priority for Mr Xi, who wants to ensure economic and social stability in the run-up to a Communist party congress that will mark the beginning of his second five-year term. In April he convened a special meeting of the party’s 25-member politburo on the subject, saying that “we cannot neglect any risk factors or hidden dangers”.

…Mr Xi, however, did not announce the creation of a central bank-led super regulator to consolidate powers currently held by separate regulatory commissions that oversee the banking, securities and insurance industries.  Speculation about such a move in recent months has highlighted behind-the-scenes power struggles between the agencies, with the PBoC expected to come out on top.

More from Reuters:

Speaking at the National Financial Work Conference, Xi said China would set up a financial stability committee under the State Council, boost the People’s Bank of China’s (PBOC) role managing financial risks and create more cohesive regulation.

“We will strengthen the PBOC’s role in macro-prudential management and in averting systemic risk,” Xi said, adding the country would increase the accountability of regulators and the supervision over regulatory bodies.

It appears China’s course is set for now. Deleveraging will persist but not via any draconian move to tighten credit. It will be an incremental macroprudential push to shove credit towards more productive enterprise.

That sounds to me more like a slow slowing than a repeat of 2015.

Pretty much as expected.


  1. ResearchtimeMEMBER

    Cannot reform with that level of debt… the China story is over. At least for a while. Mind you, working population peaks this year, so demographics suggest that the China story is over for at least two generations.

    • 1990. The Economist. China’s economy has come to a halt.
      1996. The Economist. China’s economy will face a hard landing
      1998. The Economist: China’s economy entering a dangerous period of sluggish growth.
      1999. Bank of Canada: Likelihood of a hard landing for the Chinese economy.
      2000. Chicago Tribune: China currency move nails hard landing risk coffin.
      2001. Wilbanks, Smith & Thomas: A hard landing in China.
      2002. Westchester University: China Anxiously Seeks a Soft Economic Landing
      2003. KWR International: How to find a soft landing if China..
      2004. The Economist: The great fall of China?
      2005. Nouriel Roubini: The Risk of a Hard Landing in China
      2006. International Economy: Can China Achieve a Soft Landing?
      2007. TIME: Is China’s Economy Overheating? Can China avoid a hard landing?
      2008. Forbes: Hard Landing In China?
      2009. Fortune: China’s hard landing. China must find a way to recover.
      2010: Nouriel Roubini: Hard landing coming in China.
      2011: Business Insider: A Chinese Hard Landing May Be Closer Than You Think
      2012: American Interest: Dismal Economic News from China: A Hard Landing
      2013: Zero Hedge: A Hard Landing In China
      2014. CNBC: A hard landing in China.
      2015. Forbes: Congratulations, You Got Yourself A Chinese Hard Landing ….
      2016. The Economist: Hard landing looms for China


      • But I do think this time they are fighting demographics, whereas up until now their demographics were helping, now the peak spending wave has passed they can only fuel growth with more debt, I can’t see innovation or productivity gains being enough to drive that size economy in a world that is similarly afflicted. This time could really be different! 😜