China is the world’s Ultimate Crony Capitalist State. So it shouldn’t surprise us that the place has been blowing economic bubbles via the central bank for over a decade (at least).
The Chinese system is built on coercion, flat out totalitarianism (see the social credit system that is being implemented), political connections, economic obfuscation (in the extreme), and the belief that the big shots in Beijing can keep the party (both the Communist Party and the economic party) going indefinitely.
Will 2019 see the big correction? Maybe. Maybe not. 2015 was a year of some economic reality in China, but after jailing journalists and financiers and yet more central bank intervention it was at least able to slow the bleeding enough to keep things going.
China won’t be able to continue this game forever and debt deals the country has done all over Asia and into Africa expose it to new types of economic and political risk.
China thinks, hopes, that it is in the midst of its great post-colonial coming out celebration. But glory may not be as close as President Xi and his allies think.
It’s a sign that nine months of monetary easing by the central bank has failed to boost lending to the real economy, though it has succeeded in pushing housing and government-bond prices into bubbly territory. This kink in China’s monetary-policy machinery bodes ill for 2019, and makes predictions that growth could bottom out in the first quarter look optimistic.
There are bubbles all over China. Some began to pop a few years ago. We may see many more implode in 2019.