The Chinese government said this week that it would boost its stakes in four of the country’s top banks in order to bolster investor confidence. A bill designed to punish China for holding down the value of its currency, which many US lawmakers say gives its exporters an unfair advantage and costs America jobs, was passed in the US Senate. If it also gets through the House of Representatives, it would pave the way for retaliatory tariffs against Chinese goods. China warned that the bill could trigger a 1930s-style trade war.
What the commentators said
“It will take more than a blast of official cheerleading” for the government to turn around China’s battered stockmarket, said Simon Rabinovitch in the FT. The market is worried that the slowdown will cause a wave of bad debts following a three-year, state-mandated lending binge. The price-earnings ratio of the financial sector has fallen to a record low. Beyond the vast scope for misallocated capital – credit ratings agency Moody’s reckons bad loans could rise to 8%-12% at Chinese banks – the so-called shadow banking system is another headache. Loans in the unregulated banking system could be worth as much as 10% of GDP, according to UBS. Recent bankruptcies and suicides in an enterprise zone near Shanghai, where unofficial lending was rife, could be a sign of things to come.
Throw in still-high inflation and cooling manufacturing, and it is now clearly “proving harder than expected” for China to “manage a calibrated ‘soft landing’”, said Ambrose Evans-Pritchard in The Daily Telegraph. To ease the pressure on the domestic economy, China may decide to halt and temporarily reverse the very gradual appreciation of the yuan in order to bolster exports. But “that may not be possible”, said Evans-Pritchard, given the political clamour for tariffs on Chinese goods. China’s room for manoeuvre is shrinking. The bill is unlikely to pass the House, said Lex in the FT. “But amid fears over global growth, even the threat of trade sanctions is unhelpful.”