ASSESSMENTS

Exit the Dragon

Apr 27, 2016 | 09:00 GMT

(Stratfor)

Summary

Editor's Note: This is the third installment of a five-part series authored by ETM Analytics, an economic and financial advisory firm with offices in the United States and South Africa. The analysis contained herein reflects the views of ETM and not of Stratfor. In fact, as you will see, it is different from our existing worldview in some significant ways. We are sharing this with our readers because it is good work, produced using rigorous analytic tools and methodology. As always, we look forward to receiving comments and feedback. At the end of the series, we will share what we hear from you along with Stratfor's thoughts on how our view differs from ETM's.

China is not as economically secure as it seems. Convulsions in its financial markets have heightened global investor risk aversion and have added volatility in recent quarters. Try as they may, Chinese policymakers have been unable to stem the massive outflow of capital brought on by the current winter of dollar liquidity. Beijing seems perfectly content to bide its time, pumping audacious and improbable amounts of credit into the system, much as it has done in the past. But this time, neither the markets nor the Chinese people are confident that such aggressive stimulus policies will work. The veneer of Beijing's efficient, competent and formidable autocracy has fractured, and through the cracks seep China's geostrategic ambition — and the integrity of its currency.

But here's the problem: The size and reach of a country such as China confers on its domestic economy enormous influence over the global economy. Because China is so critical to the international system, Beijing's debt, rightly or wrongly, is the world's problem to share.

China is not as economically secure as it seems. Convulsions in its financial markets have heightened global investor risk aversion and have added volatility in recent quarters. Try as they may, Chinese policymakers have been unable to stem the massive outflow of capital brought on by the current winter of dollar liquidity. Beijing seems perfectly content to bide its time, pumping audacious and improbable amounts of credit into the system, much as it has done in the past. But here's the problem: The size and reach of a country such as China confers on its domestic economy enormous influence over the global economy. Because China is so critical to the international system, Beijing's debt, rightly or wrongly, is the world's problem to share....

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