The short-term pain of China's rebalancing

ON ASIA PACIFIC

At the end of July, the People's Bank of China (PBOC) announced that it would inject RMB17bn (£1.8 billion) into the money markets through seven-day repurchase agreements (repos). The news was well received by investors who had previously feared a further liquidity squeeze, similar to the one seen in June.

China’s new leaders have made it increasingly clear that the country is serious about economic reform. Its economic policies are geared towards deleveraging and improving growth quality through economic restructuring. Investors have coined the term ‘Likonomics’ to describe China’s new policies, named after the Prime Minister Li Keqiang. Likonomics will focus on promoting consumption, industrial transformation, and new technology. Over-capacity issues in heavy industries will also be addressed. While these steps will bring long-term gains, they will inevitably lead to short-term pain. ...