China’s Economy Charges On as Officials Target the Risk ‘Gray Rhino’

China’s economy grew faster than expected in the second quarter, putting the nation on track to meet its growth target this year and giving backing to officials in their campaign to corral oncoming financial risk.
Data showing that the world’s second-largest economy expanded 6.9 percent in the second quarter, matching the pace from the first three months, was released hours after the Communist Party’s People’s Daily newspaper warned of potential “gray rhinos” — highly probable, high-impact threats that people should see coming, but often don’t.
In China’s case it’s the relentless buildup of risks caused by the debt-fueled investment that’s contributing to growth, a development tackled by a major meeting of top leaders in Beijing at the weekend. Until now, regulators have homed in on financial-sector excesses; that probe is now widening to debt in the broader economy, a shift that prompted a sell-off in domestic stocks.
China is grappling with how to ensure annual growth of at least 6.5 percent this year while reining in financial sector risks ahead of a twice-a-decade leadership transition this fall at the 19th Communist Party Congress. A regulatory crackdown pushed up money market rates and helped damp down speculative lending while at the weekend President Xi Jinping warned regulators that failing to spot and dispose of risks in a timely manner would amount to a “dereliction of duty.”
“The gray rhinos are containable,” said Liu Ligang, chief China economist for Citigroup Inc. in Hong Kong. But the economy is “still relying quite a lot on investment and credit and overall financial leverage is still building up. There’s no doubt that China’s debt overhang is still a serious challenge.”

This post was published at bloomberg