Let’s begin with a few items on China’s economy.
1. Capital Economics argues that capital outflows from China have been driven by “Chinese firms paying back external debt.” Based on that assumption capital flows out of the country should be ending now.
2. After a quick fiscal stimulus boost, China’s excavator sales decline again. This is one of the indicators of industrial activity.
3. China’s home sales seem to be slowing.
4. A recent study found no evidence that the RMB fixings are linked to the currency basket (CFETS) announced by Beijing in 2015. In fact, the RMB volatility against the “magic basket” has been higher than against the US dollar.
Source: Hong Kong Institute for Monetary Research
5. China’s M1 vs. M2 growth divergence (broad and narrow money supply) suggests liquidity is trapped in the financial sector instead of flowing into the broader economy. One of the drivers of this trend is banks financing more of their assets via the bond market rather than with deposits.
An indicator of the divergence above is China’s banks lending to non-bank financial entities (such as WMP managers).
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