QUOTE NO EVIL

China’s new solution to its financial woes is to stop talking to Wall Street

Don’t expect to hear much from China’s state media in the near future about concerns over the country’s growing debt burden, shadow banking system or dangerous use of new lending to prop up growth—or any suggestions a financial crisis could be looming for the world’s second-largest economy.

That’s because the central government’s propaganda department is now discouraging state media from soliciting economic opinions from experts at non-Chinese financial companies, some of whom have issued dire warnings about the above. “There’s no black list or white list, but it’s clear we are now being encouraged to invite economists and analysts with domestic securities firms and banks to talk about China’s economy, especially on live broadcasts,” one unnamed mainland media source told the South China Morning Post.

The China Banking Regulatory Commission, meanwhile, has trimmed the number of closed-door briefings it gives to foreign banks, the SCMP reported, limiting the information that economists and analysts from Wall Street and other institutions receive. “Invitations are now being sent to only a small number of economists at foreign banks whom the CBRC considers trustworthy,” the SCMP said.

A small but growing pool of economists and analysts from non-Chinese financial services firms have been sounding loud alarms about the outlook for China in recent months:

  • “There’s definitely a fairly decent risk” of China seeing a subprime-like financial services crisis in the future, David Cui, Head of China Equity Strategy at BofA Merrill Lynch, told CNBC last month. “The way China has leveraged up, it’s almost unprecedented,” he said.
  • Bin Gao, a BofA Merrill Lynch strategist, warned last month about “China’s Bear Stearns moment” when the government bailed out an investment product, referring to the US government’s bailout that precluded the 2008 financial crisis.
  • “The big story of 2014 in the emerging world is the black cloud of debt hanging over China,” Ruchir Sharma, a Morgan Stanley emerging market expert, wrote in January. China “faces a serious risk of at least a major slowdown,” he said.

Many of the economists and analysts who study China work for government-controlled universities and think tanks, or directly for the same state-run banks that are issuing the risky financial products that have spooked bearish economists and analysts at foreign banks.

Domestic experts’ outlook for China’s economy remains bright. Industrial and Commercial Bank of China (ICBC), which issued a closely-watched investment product tied to a troubled coal company that imploded, has these recent reports about China’s economy featured on its website:

  • China’s economy is “expanding at a reasonable speed,” but won’t reach double digits, Fan Jianping, chief economist with the State Information Center, a government think-tank, said in August. Instead, it is in a “new phase of restructuring,” he said. “Though the economic growth rate has slowed, its quality and efficiency have improved,” he said.
  • Stable demand from “the three main drivers of China’s economic growth — fixed-asset investment, retail sales and foreign trade — means industrial output expansion should remain at a relatively high pace,” another State Information Center economist said in October.
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