What is happening with China’s long-dated government bonds?
Special points to highlight in this report:
* July’s data continues to indicate a sluggish economy, but it is important to add that even as overall growth is slowing, the quality of growth is also deteriorating. As I see it, “high quality” growth in China is the share of growth driven mainly by domestic consumption and business investment. While growth in the former continues to lag industrial output overall, the latter has been flat so far this year.
* Since March I’ve argued that until Beijing initiates a meaningful fiscal stimulus aimed at boosting consumption, not only would GDP growth be lower than expected, but the quality would inexorably deteriorate. That is why I believed that there was a very high probability of Beijing’s announcing (probably in the third quarter) a large—at least RMB 1 trillion—demand-side stimulus. I think this is more likely than ever.
* As the economy slows and as households cut back on savings, the need to find a place to park those savings—much of which is ending up in long-dated government bonds—has the PBoC worried about the risks of a bond bubble. There is, however, little the PBoC can do to eliminate this risk.
Now read on...
Register to sample a report