Hong Kong is distracting us from the growth and credit data

CHINA FINANCIAL - Report 19 Aug 2019 by Michael Pettis

Special points to highlight in this issue:

* While nothing can be ruled out in such a politically complicated environment, the cost of a direct intervention by forces loyal to Beijing into Hong Kong is very high, making it unlikely. An intervention would cause a sharp fall in Chinese exports and, worse, a very sharp contraction in foreign currency lines available to Chinese borrowers. With net external liabilities comprising a substantial portion of total reserves, the Chinese economy cannot easily afford a cutting back in bank lines.

* The latest growth data suggests that the Chinese economy continues to slow more quickly than most analysts expected. On the one hand the pace of the slowing may force Beijing to respond by attempts to boost growth, but on the other, Beijing seems to be preparing the country for slower growth.

* It is still too early to know what will happen over the rest of this year, but I am increasingly confident that we will see GDP growth for the second half come in near the bottom of the GDP growth target range for 2019, preparing the stage for even lower growth in 2020. This will be bad news for emerging markets and commodity producers, but good news for China.

Now read on...

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