Will China's economy surprise on the upside?

ASIA

In June, the one-month SHIBOR (Shanghai Interbank Offered Rate) hit 8.68% before falling to 8.01%, high enough to unsettle markets

SHIBOR has since come back, but the point has been missed. The spike was encouraging. It offered a signal the new government is serious about reform, although we expect considerable volatility in the near term. Unlike Lehmans, the spike in the interbank lending rate was due to a deliberate policy. China’s credit-to-GDP ratio had risen from close to 120% five years ago to around 200%. The People’s Bank of China (PBoC) responded by refusing to inject liquidity into the system, and intimating to reckless lenders they would be unable to rely on the central bank to bail them out. That s...