For global investors and, indeed commentators, China remains a fascinating subject and one that carries a health warning.
Nearly a third of fund managers say the recent tightening of credit by authorities in Beijing, who are taking aim at the shadow banking sector, is now the biggest tail risk for markets, according to a Bank of America Merrill Lynch survey released this week. Not since January of 2016 has China ranked above the threat of a eurozone break-up as the biggest worry for investors.
The catalyst has been Beijing’s belated effort to bring an enormous credit bubble under control. As a result, interbank lending rates have shot up, while five-year bond yields have risen above those of the 10-year sector — both signs of financial tension that reflect the crackdown on leverage.