Resolving NPLs in China
Friday’s announcements on new monetary easing measure were expected by the market and do not imply any change in policy direction. They are largely a response to continued slowing but I do not expect them to interrupt the decline in GDP growth.
- Unfortunately measures that relieve debt servicing pressures only do so by implicitly transferring part of the debt servicing costs to Chinese households, so while they give China more time to rebalance, they also slow down the rebalancing process.
- But while there is no reason to celebrate, nor is there any reason for worries to deepen. The economic data released earlier last week contains no surprises. China still faces the same tradeoff: it must slow credit growth as quickly as it can, but not so quickly so as to disrupt its heavily indebted economy.
- The faster Beijing forces wealth transfers from the state sector to households, the easier will it be for China to adjust and the less the needed decline in growth, however the greater elite opposition is likely to be. Every policy announcement and implementation should be interpreted in light of its wealth transfer or debt repayment impact.
I’ve decided to break this rather long newsletter into two parts. The first addresses recent data releases and monetary policy changes. The second, for those who want to postpone reading the less time-sensitive part of the newsletter, addresses ways in which Beijing can resolve rebalancing and debt.
Now read on...
Register to sample a report