Ambrose Evans-Pritchard
September 17, 2014
China’s leaders have brushed aside warnings of an incipient credit crunch in the Chinese economy, determined to purge excesses from the financial system despite falling house prices and the deepest industrial slowdown since the Lehman crisis.
Industrial production dropped 0.4% in August from a month earlier, a rare event that highlights how quickly China is coming off the boil. The growth of fixed asset investment fell to record lows.
“It is a shockingly sharp deceleration,” said Wei Yao, from Societe Generale. “What is surprising is the calm response from Beijing. The new leadership’s tolerance for short-term pain seems to have jumped by another big notch.”
Electricity output has dropped 2.2% over the past year as the authorities continue to force dinosaur industries into closure, chipping away at excess capacity.
New credit has fallen 40%, and there has been an outright contraction of trust loans and undiscounted bankers acceptances over the past two months, the result of a clampdown on parts of the shadow banking nexus.
Premier Li Keqiang has so far refused to blink, determined to drive through deep reforms and wean the economy off exorbitant levels of debt before the damage becomes irreversible. “We are restructuring instead of expanding the monetary supply,” he said last week, warning markets not to expect easy money to ignite a fresh boom this time.
But will he and his fellow Communist Party leaders keep not blinking?
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