China bulls are confronting an uncomfortable new reality. Everyone now agrees with them.
As the Year of the Dog approaches, the level of worry about China’s seemingly unsustainable growth pattern is as low as at any time since the financial crisis almost a decade ago. China’s repeated ability to avert disaster without ceasing its steady growth has never been taken on trust, and the mess its authorities made of adjusting the currency in the summer of 2015 triggered the last significant downturn in global equity markets. The Communist party congress last year left Xi Jinping in an alarmingly strong position, according to many political commentators, but reassured markets that there was a guiding hand at the tiller.
Even the worrying comments from Zhou Xiaochuan, outgoing head of the People’s Bank of China, that there might be the risk of a “Minsky Moment” — economic jargon for a collapse of confidence in credit — have been taken as positive. Investors are comfortable that the authorities are aware of the risks. When infrastructure projects are shelved unfinished it is taken as a sign of seriousness about avoiding excessive debt, rather than of poor planning. At least, the argument goes, there is no complacency.