Will Beijing turn the taps back on?

CHINA ADVISORY - Report 20 Dec 2021 by Andrew Collier

The Evergrande default took the market by surprise as central government support (at least until recently) was widely expected. Since then, China has issued mixed signals about its plans for handling the Evergrande crisis. On one hand, the central bank cut the Required Reserve Ratio, releasing 1 trillion yuan in lending capacity. On the other hand, it has refused to organize a state-backed recapitalization, instead choosing to put the Guangdong Government in charge. What does this say about future plans? Our view is that a major stimulus – despite what economic pundits are saying – is unlikely. Beijing wants to force the local governments to make substantial changes to the property market and handle the majority of the problem. That doesn’t mean they won’t step in if needed and are going to provide some overall monetary support but it may not be as large as expected.

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