China is once again causing severe headaches for global investors.
Until recently, the economy was coping well with a tightening in financial conditions, designed to reduce speculation and excessive leverage in the financial system, especially among shadow banks. In early 2018, China remained a zone of firm growth in an emerging world that was clearly reacting badly to the rising dollar.
However, the very weak domestic demand data published in May have shaken market confidence. Consumption and investment appear to be slowing. Deleveraging, it is feared, might cause a recession in domestic demand, just at the moment when US tariffs on Chinese exports will weaken the foreign trade sector. Chinese equities have dropped 23 per cent from the peak and the renminbi has fallen 6 per cent against the dollar.