Thursday, April 06, 2017

2017's Black Swan: The Chinese Economy?

As we are always hearing, "Wow! Six months ago no one saw that coming...." and then eventually we find that, well, some people actually did.

I'm always looking for that first pop above the ambient noise, especially in those areas that seem counter to the conventional wisdom.

Over the years, when we've done a Midrats show on China, we always spend a few minutes discussing that China has significant structural economic issues, but that are not talked about often.

Over at TheNationalInterest, Gordan Chang has your must read for today;
Beijing, which once thought it would dominate the world, has been playing defense for the last year and a half as almost no economic trend has been going its way.

We start on the 14th of this month, when Janet Yellen inadvertently highlighted China’s fragility. The Federal Reserve’s hawkish comments on interest rates—the central bank signaled three rate increases next year instead of the expected two—along with the quarter-point rise in rates forced bond prices down across the world. In China, the damage was historic.

Last Thursday, just a few hours after the Fed’s announcements, futures on China’s benchmark 10-year obligation stopped trading when they hit the daily down limit, the first time that has ever occurred. Trading on the five-year also was halted, another first. The People’s Bank of China, the central bank, injected the equivalent of $22 billion in short-term money, and that allowed trading to resume.

The next day, bond prices recovered in China, but only because the PBOC injected more than $57 billion. Beijing, by brute force, was able to stabilize the bond market, already rocked by defaults and cancelled offerings.

And the Chinese central bank has also muscled the currency markets by orchestrating rescues. The renminbi is ailing, down 6.9% this year against the dollar. Beijing once had ambitions of the “redback” replacing the greenback as the world’s reserve currency, but now it is merely trying to stage an orderly descent.
Even if you aren't an econ geek, read it all.

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