That sounds like one of those questions that, as Deng Xiaoping used to say, should be left to history. But it is one that Fat Dragon has been contemplating in the wake of the media reports about a moratorium on bank lending in China in late April.
As it turned out, there wasn't a moratorium after all, or at least not one imposed from above. Some mid-sized commercial banks had had the riot act read to them by Beijing about reducing their lending and apparently decided in response to shut down completely for three days in the lead-up to the May golden week holiday.
In the long tradition of Chinese policymaking, the pendulum, after swinging one way for a while (shovel the money out the door as quickly as possible), swung back viciously in the opposite direction (close down lending altogether.)
The world has been hearing a lot about China's strengths in recent times, but the episode tells you all you need to know about China's weaknesses.
The country's banks have little idea about how to ration their lending in a commercial fashion, by judging the creditworthiness of their customers; and no tools to price risk in any case, because of the tight regulation of interest rates.
The episode also underlined China's importance to the global economy. In the blink of an eye, the news that China was slamming on the brakes hit the Peruvian and Chilean stock markets; took a few cents off the Australian dollar; prompted a near-ten percent fall in copper and nickel prices; and caused a sell-off of Hong Kong shares.
The harder question is that Fat Dragon has never seen anything like it in his years at the China trough. The Chinese economy had got such a head of steam up in recent months that any news was starting to be viewed as bad news. If the economy was steaming along, it was further evidence that it had to be slowed. And if it was slowing down, then all those raw materials prices that had been pumped up had to come down. In the momentary carnage of late April, Fat Dragon was patting himself on the back for having gone short on Mainland plays for some months. But that was the easy call.
The harder question is what happens next. Fat Dragon remains, yes, a trifle bullish. It's important to remember that China has one single national policy – economic growth.
The government wants the economy to have a little nap, not go into a coma. With that in mind, this column's advice is to buy on the dips, not of H-shares in Hong Kong, which still have a way to go down, but of the big resources companies that have a direct line into China's industrial economy.
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