Oh great. It looks like another credit crunch is on the way. It’s been overshadowed by the one in the U.S., but not for much longer it would appear.
For quite some time, the Chinese government has been tightening monetary policy to curb excessive bank lending in order to cool off the sizzling hot Chinese economy. A centerpiece in policymakers' efforts has been a lengthy string of hikes to reserve ratios for Chinese banks -- to 15.5% as of mid-March.
The clampdown finally appears to be biting. The Shanghai stock market has tumbled more than 40% from its peak about three months ago -- as can be seen in this chart from the Calculated Risk blog. The iShares FTSE/Xinhua China 25 Index (FXI) shows a similar drop. In addition, Chinese land and property prices are sliding, notes Avner Mandelman in the Globe and Mail.
It makes one wonder if the commodity boom is in for a substantial correction. There is a theory the boom can survive a U.S. downturn thanks to Chinese demand -- but if China is slowing down too, not much else is left to hold the sector up. Could it pose a risk for Canada’s buoyant performance to date?
