Beijing’s reluctance to bite the bullet on bad assets looks like an error that the whole global economy may pay for.
The Belt and Road Initiative has been shelved as defaults mount and the spin has shifted to the six invited new members of the BRICS. The ill-advised COVID lockdown has been reversed. Evergrande, Country Garden and other developers are in deep trouble as the stock of unsold apartments, already large, becomes unmanageable.As things have worsened, President Xi Jinping is upping maritime aggression in the South China Sea, a useful distraction from domestic mismanagement.
When they rolled this policy back, speculation was allowed to continue, funded by off-balance-sheet vehicles. The speed and size of all this should have sounded alarm bells to the Chinese government. But growth has always remained the priority. This probably reflects a mix of defaults, write-offs and state banks pulling the assets back to their balance sheets where they can hide at par in the banking book. It does not reflect the government taking the risk into “vehicles for which they are responsible, allowing the portfolios to be worked through over many years .
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