Policy in China still puts growth before deleveraging
Subject Growth and deleveraging in China. Significance China will have to sacrifice a portion of its growth if it wants to reduce its dangerous debt burden. Reducing credit growth will almost inevitably lead to an even higher reduction in GDP growth. This is a price the Chinese government is not yet prepared to pay, but it could be forced to act in the medium term if it wants to avoid a financial crisis. Impacts Investors, traders, central banks and governments should prepare for continued GDP growth, but a rising risk of a sharp slowdown. Rating agencies should remain sceptical regarding the government’s campaign against leverage and risk. Foreign banks wanting to increase their business in China must interpret government statements cautiously. Producer prices have risen since late 2016 after a spell of deflation, boosting profits; this will continue, helping them pay their debts.