China: Growth, Stimulus & China’s Minsky Moment

In their latest edition of Enodo Untangled, Enodo Economics answers a series of questions on the China economy, collected from clients in their annual “Your Questions Answered” round-up. These questions are grouped under four themes: growth, Beijing’s policy stimulus, its market impact, and whether China faces a Minsky moment. Enodo’s Chief Economist, Diana Choyleva, has a overall bearish view, and she writes that in 20 years of covering China’s economy and markets, this is the most worried she has ever been about the Communist Party’s ability to keep the show on the road. On growth, Choyleva’s estimates real growth was at 0.9% in Q3, the weakest quarterly annualised rate since they started producing estimates in 2004 – even lower than the trough of 1.9% during the global financial crisis. Annual growth slowed to 3.7% by her reckoning, compared with 5% in the crisis, and still has further to go, Choyleva argue. So what all this means is more stimulus in 2019 and bigger budget deficits to complement the looser monetary stance. Enodo expects the credit impulse to be larger in 2019 than in 2018, with authorities keen to provide further stimulus with a focus on bank lending to the private sector, in particular SMEs. But will it be enough? Choyleva suggests that it may just stave off the inevitable for a few years, and she warns that the fracturing of global supply chains set to usher in stagflationary era. China almost sure of facing a Minsky moment within five years, she concludes.