China’s focus on bubble risks is a warning for stock 2/2


China’s focus on bubble risks

China’s focus on bubble risks is a warning for stock 2/2


A stronger economy and signs of excess have provoked stronger rhetoric from Beijing in recent weeks. The People’s Bank of China said in its latest monetary policy report that it will balance the need to support growth and prevent risk. A front-page report in state media last week said the economy is strong enough to withstand policy normalization. In January, the central bank engineered the biggest cash squeeze since 2015, after an adviser suggested a shift away from stimulus.Debt was about 280% of China’s gross domestic product in November, the highest ratio since Bloomberg started compiling the data in 2014.

Beijing is set to unveil its major economic goals on Friday, when the National People’s Congress, China’s rubber-stamp parliament, convenes for its yearly meeting.

While officials have stressed that changes in policy would be gradual, China’s monetary policy conditions “will visibly tighten this year,” Li-Gang Liu, managing director and chief China economist at Citigroup wrote in a report this week.

The prospect that China will tighten funding conditions is derailing gains in the country’s most popular stocks. Liquor makers such as Moutai are hardest hit because they are widely owned and command some of the highest valuations. The CSI 300 index – which in February briefly topped its record close from 2007 – has lost 7.9% since mainland markets reopened after the new Lunar New Year.Authorities are juggling curbing leverage while maintaining economic growth before the Communist Party’s 100-year anniversary this year. The central bank has calmed interbank funding markets since January, when short-term rates spiked to the highest since 2015.”Deleveraging and financial risk mitigation will both stay in policy focus in 2021,” said Tianhe Ji, a strategist at BNP Paribas in Beijing.