However. China has a credit bubble. It is as indebted as the United States by some measures. China has had strict capital controls in place for several years now. The yuan would collapse if it was freely floating. They cannot afford to move out of step with the world unless they're willing to risk extreme shocks.
The Sounding Line: China Easing Not Happening Yet; Hong Kong Declining
“Everyone is getting ahead of themselves… Everyone sort of knows that policy is going to get eased one way or another, maybe mildly or not…, and they want to be the first one to announce, whether it’s a media publication or a sell side pamphlet on Wall Street… It’s not happening yet. Will it happen eventually? Sure. They’re going to have to boost sentiment some time in 2022… but right now we are seeing borrowing numbers that are similar to the lows of 2021. We are seeing pent up demand numbers which are similar to the lows of 2021 which are lowest levels we’ve ever seen in the history of China Beige Book data… (Easing) is not happening yet…”The pattern since 2008 has been the U.S. dollar, including USDCNY, rises until the global central banks begin coordinating easing. Commodities fall until easing begins. More than everyone jumping to announce it, I sense investors have front-run the pattern. Everyone has priced easing into the markets. The one asset saying "hold up" is gold. More importantly, will the pattern work again? Since 2008, there have been a series of government and central bank induced recoveries. No economic growth has been sustained since then. Every major country's economy, including China's, has been living on the monetary and fiscal equivalent of candy bars. Now they've wrecked supply chains, shuttered their economies. There is an assumption by most market participants that printing money always works. When it stops working, stimulus further deforms the economy. Inflation is uneven, with some items like lumber or romaine lettuce surging in price.
The political consolidation under Xi suggests the CCP may not pump this time. Or will make some hard choices as part of an easing. Whatever happens, no major change and no major bad news will come until after the February 2022 Winter Olympics.
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