Don’t Wake the Zombies

China’s economic planners have concentrated supply-side structural reform efforts this year in the struggling coal and steel sectors. Those efforts may have been too successful, resulting in supply shortages and surging prices. Authorities have met with coal producers frequently over the last two months to overcorrect imbalances caused by mandated production cuts, calling into question the policy commitment to alleviating overcapacity and restructuring uncompetitive industries. Moreover, supply-side reform outcomes in coal and steel are inherently at odds, complicating the path forward. Therefore, policy induced volatility will be more relevant to the outlook for these two sectors in the next few quarters than indicators of industrial demand, which are likely to remain softer due to tightening toward the property sector.

Posted August 1, 2017
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