Citi: China tightening won’t choke off economy and markets
China’s central bank has enough “ammunition” to ensure the economy stays on track amid deleveraging
Tighter regulations won’t spark a repeat of the 2015 crisis, Citi analysts wrote May 24:
“The push toward tighter financial regulations that started in late Mar-17 has unnerved China’s real economy as well as its financial markets. April’s economic data was weaker, commodities have sold off, money-market rates have surged, bond-market yields are now inverted, and the A-share market has slumped.
Does this maelstrom portend a 2015-like turbulence? This deep-dive report, which analyses a broad spectrum of possibilities, argues that the economic impact will only be modest, as the PBoC has enough ammunition to counter any disruption.
A major financial crisis is likely to be averted: The small and medium banks are most at risk, with their balance sheets having ballooned in the past two years. Unwinding of their shadow banking business will mean prolonged turbulence.
However, lessons learned from the Jun-13 cash crunch, new policy tools and the policy priorities ahead of the 19th Party Congress all suggest to us that a 2015-like crisis will be averted. Regulatory tightening, if left unchecked, could potentially shave 0.265pt off economic growth for the rest of 2017. The PBoC can use the RRR effectively to ensure the economy does not lose steam.”