Can the Punch Bowl Really be Taken Away?

Given a high GDP growth target, policymakers might push the panic button and turn on the liquidity tap in order to forestall an economic downturn - this would be highly unfortunate but not inconceivable.

While Chinese policymakers concur on the need for deleveraging, what to tackle first remains a much debated issue. At present, the trend seems to favor financial institution reform. For example, regulators recently put the issuance of online micro-lending licences on hold; earlier, they banned ICOs (initial coin offering). Indeed, it could well be that policymakers have decided to start with the financial sector because in this sector irregularities are pervasive and profits are widely seen as being “excessive”. Even some of the most successful Chinese entrepreneurs have complained that “they are laboring only to service bank loans”.  Therefore, a reduction of the financial sector’s leverage seems both sound economics and good politics.

Sitao Xu
Deloitte China Chief Economist | Deloitte China Partner