Annual real growth in gross capital formation hit 6.6 per cent in 2014, down from 10.2 per cent in 2013 and a peak of 25 per cent in 2009.
Thomas Gatley, China corporate analyst at Gavekal Dragonomics, a research firm, estimates that so far this year GFCF may be running at around 4 to 5 per cent.
David Cui, from Bank of America, said $1.2 trillion of stock holdings are being carried on margin debt. This is 34pc of the free float of the Shanghai and Shenzhen stock markets. “When the market ultimately settles at a level that can be sustained on fundamental reasons, we expect that the financial system may wobble, due to high contagion risk,” he said.
Mr Cui said the brokers and trusts have barely 1.6 trillion yuan ($260bn) to absorb losses and may be overrun. “Given the particularly thin front line of the financial institutions, we suspect that it’s a matter of time before banks may have to face the music,” he said.
This in turn risks setting off a “bank run” on the shadow banking system as investors lose trust in wealth management funds, fearing that their deposits in the $2.1 trillion industry no longer have an implicit guarantee.
As Arnold Kling would say, have a nice day…