China: Central Government a Credible Economic Backstop, but Politics Is the Crux

Economist, Centennial Asia Advisors

Jason Tan

Economist

Centennial Asia Advisors

At Centennial Asia Advisors, we tell it like it is. We have no vested interests, no need for a China wall, and no reason to skew our outlook any other way. With over 30 years experience covering Asia’s political economy, you can be sure our conclusions and analyses are based on the unadulterated facts. Through years of fine-tuning our research methodologies, we deliver a quality of macroeconomic analysis few other houses can match.

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<p><strong>China: Rebound in activity but difficult balancing act for policymakers raises concerns</strong></p><ul><li>Corporate debt defaults by SOEs are rising in China as the economy remains bogged down by the twin concerns of overcapacity and over-leverage.</li><li>Yet there are positive signs: Industrial profits have rebounded; PMI indices have increased; and real estate activity has led a surge in economic activity.</li><li>But this rebound is of a low quality and unsustainable. Rising SOE defaults will upset the perception of an implicit ironclad guarantee by the government. The surge in real estate only reflected frothy markets; curbs to prevent asset bubbles will be implemented.</li><li>As economic difficulties lead to social unrest resulting in political stresses, policymakers are finding it increasingly difficult to balance the demands of the economy and politics.</li></ul>

China: Rebound in activity but difficult balancing act for policymakers raises concernsCorporate debt defaults by SOEs are rising in China as the economy remains bogged down by the twin concerns of overcapacity and over-leverage.Yet there are positive signs: Industrial profits have rebounded; PMI indices have increased; and real estate activity has led a surge in economic activity.But this rebound is of a low quality and unsustainable. Rising SOE defaults will upset the perception of an implicit ironclad guarantee by the government. The surge in real estate only reflected frothy markets; curbs to prevent asset bubbles will be implemented.As economic difficulties lead to social unrest resulting in political stresses, policymakers are finding it increasingly difficult to balance the demands of the economy and politics.

China: Policymakers Straddle Tightrope