China’s looming Lehman moment looks like déjà vu all over again

(Originally published Sept. 12 in “What in the World“) Same old, same old. China’s central bank is fighting back against capital outflows as the gloom surrounding the country’s economy closes in.

The People’s Bank of China warned Monday that it would act against any transactions it deemed “one-way bets” against the renminbi. Reuters, quoting unnamed sources, said the PBoC also planned to require any company trying to purchase $50 million or more to get its approval first. Reuters’ sources said the PBoC conveyed the new rule to commercial banks at a meeting convened over the weekend.

Weak economic data have accelerated efforts by companies and individuals in China to get their money out, selling yuan for dollars. The renminbi fell recently to its lowest since 2007. There isn’t much arguing for the yuan: exports are declining, and domestic prices are falling. Worse, the gap on what money will earn abroad, where interest rates have been rising to curb inflation, and at home where interest rates are falling to stimulate growth, is getting larger.

And China’s economy is presenting fewer opportunities for profit. Big Western banks—including Barclays, JPMorgan and UBS—are now daring to lower their GDP projections for China below the Government’s official target of 5%.

China’s GDP numbers don’t mean too much, since Beijing can and does decree its GDP growth numbers with the stroke of a pen. Economists have long accepted that the statistics ultimately produced are at best “directionally accurate.” So, any private economist who thinks the number will come in below what the government has pegged is really trying to tell us that Beijing will have to relent and steer its own narrative lower to maintain at least a modicum of credibility.

Signs are also mounting that Beijing is rolling out the tiny tunings that can stave off the kind of major default that would touch off a financial crisis—mainly by reviving the market for speculation in property. Officials in China’s biggest cities (China’s hottest property markets) have in the past couple of weeks eased restrictions on property investment, according to Gavekal Dragonomics.

So, as so often predicted in this space, Beijing seems determined to kick the can on China’s debt addition until it crowds out economic growth altogether. It’s a policy tactic so depressingly familiar that it no longer bears re-writing. We’re stuck in an economic version of the classic 1993 comedy “Groundhog Day.”

Maybe this time ‘round, Beijing will finally get it right.