Emerging Markets Face The Sudden Stop?

China Unexpectedly Holds Rates After “Shockingly Weak” Economic Data

It was just yesterday when we noted the sharp collapse in the Chinese credit impulse, when in May, the PBOC reported that Total Social Financing grew at the slowest pace since July 2016, as a result of a full-blown crackdown on China’s shadow credit system.

Barely 24 hours later, China served not one but two major surprises that were the direct result of the sharp slowdown in China’s credit dynamo.

On Thursday China reported activity data including industrial production, fixed asset investment and retail sales, which missed across the board – in the case of fixed investment the weakest on record – and were the most definite confirmation yet that China’s economy is finally starting to get hurt under the weight of a multi-year crackdown on risky lending that has pushed up borrowing costs for companies and consumers, and has led to a surge in corporate defaults.

The number suggested further weakness ahead if Beijing continues with its crackdowns on pollution, questionable local government spending and off-balance sheet “shadow” financing, which as we reported yesterday tumbled at the fastest monthly pace on record.

 

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