Breakingviews – Chinese Xi Has Valuable Opportunity To Clean Up
HONG KONG (Reuters Breakingviews) – China seizes opportunity to clean up. From property to cars to chips, authorities are imposing new rules and regulations to defuse risk and reallocate capital. This echoes aggressive efforts to deleverage the economy in 2017, and this time President Xi Jinping may be ready to endure more disruption.
Three years ago, regulators attacked the shadow banking sector, then close to $ 10,000 billion. These lenders grew rapidly, funneled excess funds into real estate and vanity infrastructure projects, and turned state-owned enterprises into zombies. The crackdown pushed up bond yields and slowed economic growth: Xi suspended the cleanup a year later as trade tensions with the United States erupted.
Now the focus is on systemic risk as China strongly recovers from the pandemic. The biggest risk of the “gray rhino” is the real estate industry, the banking regulator warned on Tuesday, revealing that home loans accounted for 39% of total bank loans, which stood at $ 25.8 trillion in September. Elsewhere, the state planner has ordered investigations into unnecessary investment in chipmaking and new energy vehicles.
China is trying to prevent entrepreneurs from cramming into anything that has a hint of political support, a trend that creates new bubbles and crashes. The electric car ambitions of indebted real estate developer Evergrande illustrate the problem. Defects on bonds by local government-backed companies, including the parent company of BMW’s Chinese partner, signal Xi’s declining tolerance for throwing money after evil. The abrupt end of the initial public offering of the payment group Ant, the payment subsidiary of Alibaba, underlines the desire to attack large companies as well.
Left with the bitter aftertaste of the 2017 campaign, Beijing will be aware of the risks of a sudden liquidity and credit crunch, but it will be difficult to avoid in practice as investors adjust to the new realities. The weighted average loan interest rate for all loans rose six basis points in the third quarter from the previous quarter as stimulus faded, according to a central bank policy report released this week. last. Bond yields and interbank rates have exceeded pre-pandemic levels.
Deep cleaning will ultimately increase the actual productivity and make China Inc more formidable. With the world in turmoil, Xi can reasonably conclude that now is the time to stop kicking the box.
Reuters Breakingviews is the world’s leading source for agenda-setting financial information. As the Reuters brand for financial commentary, we dissect big business and economic stories from around the world every day. A global team of around 30 correspondents in New York, London, Hong Kong and other major cities provide real-time expert analysis.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and to www.breakingviews.com. All opinions expressed are those of the authors.