PBOC is talking with other central banks
“My assessment is how this evolves is very much in the hands of the Chinese authorities,” Dr Debelle told the House of Representatives economic committee on Wednesday.
“It’s a question of how they want to deploy that power and that’s a question I don’t have an answer to.”
He expects markets will get a better sense of what China would like to happen in the next week or so.
But Dr Debelle also gave a warning of past experiences.
“If you have a lot of balls in the air, sometimes you might drop one,” he said.
“If you look at how countries have dealt with financial issues in the past, you often see a misstep which can have severe consequences.”
“Whether that’s what’s going to happen this time around, I don’t know, bit it’s a possibility. But at the same time I feel (China has) a pretty good handle on what the state of affairs is.”
That might sound innocuous because we’re all so accustomed to uninformed speculation about macro events in China. But this isn’t a guy who is shooting from the hip.
“The deal is being designed to protect Chinese nationals who have bought apartments from Evergrande, like the ones you see protesting on the streets and also those who have invested in Evergrande’s wealth management products,” the source said.
“But the big thing is stemming any widespread economic flow-on effects that insolvency would cause on the China economy.”
Add this all up and it’s a done deal.
So while markets have offered some positive ticks, there’s still a considerable way to go here. Obviously, there’s going to be some waiting until after the Fed, but assuming no big hawkish surprise, we’ll see a flood of buying in risk assets afterwards, the perhaps some ‘sell the fact’ when the Evergrande restructuring is announced.
The only hiccup here is that the FOMC has likely been given the same information as the RBA and others. If they believe a resolution is coming, they’re less likely to be dovish. I hope Powell is asked about Evergrande because we might get another hint from him; something like ‘we’re optimistic that China has the situation under control’ with a token nod to uncertainty.