China credit tightening – economic risk or macroprudential sensibility?

We view Chinese steps to restrain leverage a positive development, proving that the authorities are equally capable of removing the punchbowl. Some have drawn parallels with the slowdown that panicked market last year. But underlying conditions are very different. Domestic growth dynamics look strong and the global story has also improved driven mainly by quickening European activity. Such an environment negates the need for further Chinese currency depreciation. A weak dollar backdrop reinforces this. So we are closing our short renminbi position against the CFETS basket.

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