US: Exposing China’s other vulnerability - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that there is the risk that a Chinese confidence hit from US tariffs might bring to the surface other vulnerabilities; including signs that Chinese corporate debt excesses are becoming a problem.

Key Quotes

“It is far from clear that the Chinese government will have the fiscal and monetary tools to fully contain the economic and financial damage from the combined threats of US trade policy and tightening credit conditions.”

“Many analysts believe that China will ease policy to bolster growth. However, its policymakers may think its corporate credit excesses can no longer be simply contained by halting or reversing its financial sector reform.”

“For instance forcing state-own banks to keep afloat struggling debt-ladened companies may significantly reduce their capacity to finance productive dynamic enterprises, and do little more than moderate the slowdown in economic growth while damaging longer-term economic potential.”

“We suspect China may not be willing or able to simply ease monetary and fiscal policy to underpin growth to the same extent as it did in 2016/17.”