China’s policy backpedaling

CHINA ADVISORY - Report 20 Aug 2018 by Andrew Collier

China’s banking regulator Saturday issued a strong notice proposing a heightened stimulus for the economy. This notice from the China Banking and Insurance Regulatory Commission (CBIRC) was unusual for several reasons:
• First, it was more aggressive than previous government statements;
• Second, it mentioned the insurance industry 17 times, which suggests a new, more interventionist role for an industry that has been increasingly under tight control;
• Third, it put the CBIRC in the forefront of decisions on the macro economy, seemingly ahead of the Ministry of Finance and the People’s Bank of China. Why?
More broadly, the loosening is likely to continue to favor capital to the state sector at the expense of private companies through inefficient infrastructure investment, and suggests (once again) that the authorities are panicking. We analyze this dynamic and its impact on the economy.

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