If a fireman has to put out fires every day for a year, he gets more proficient. That’s where Beijing is now.
The same can’t be said of the U.S.. The slide in its sovereign long-term bond yields – a measure of investor confidence – has been fast and furious. Just two weeks ago, when Federal Reverse Chairman Jerome Powell described the U.S. rate cut as a “ mid-cycle adjustment,” the gap between the 2-year and 10-year bond yields was still 21 basis points. On Thursday morning in Asia, the 30-year yield, which more reflects traders’ view of the overall health of the economy rather than the depth of the current easing cycle, fell to a record low below 2%.
To be sure, China’s economy is slowing: Industrial output growth is at its weakest since 2002. But digging deep into the data, the picture that emerges is of a government that’s measured and confident. For instance, some of the weakness in the July data reflected moves to rein in shadow financing and restart property deleveraging. If Beijing wants better-looking industrial output numbers, it just needs to reopen the liquidity taps – as we saw in the first quarter.