China stabilised its economic ship in 2017, and conceivably most crucially, the credit binge appears to be waning. JPMorgan thinks that China’s debt-to-output ratio fell for the first time in six years in the second quarter of last year.

Yet despite this, several top market analysts included a potential China slowdown in their assessment of risks in their 2018 outlooks. China’s economy started 2018 facing what its own leaders call “critical battles.” As the financial system in China opens further to foreign firms, a debt-to-GDP ratio that’s heading toward more than 320 percent by 2022 stands as the main danger for the Chinese economy.

Beijing is currently in the second year of a government-led campaign to wean China off its debt-heavy investment model, clamping down on everything from speculative property lending to shadow-bank financing activities with the view to foster sustainable longer term growth.

If this escalates into a more intensive effort that weighs on growth, it could possibly weaken the global economic recovery that supported markets last year and even reignite the worries that prompted the last global correction in 2016.

“With the 19th Party Congress now behind us, the risk is that the peak growth in China is also behind us,” David Woo, head of global rates, FX and EM FI strategy & econ research at Bank of America, said in an outlook report.

Even China’s banking regulator chief cautioned this week that a “black swan” event could threaten the country’s financial stability. “We need to focus on reducing the debt ratio of companies, restrict household leverage, strictly control cross-financial sector products, continue to dismantle shadow banking,” Guo Shuqing told a state paper.

Plans for 2018 were laid out at Beijing’s Central Economic Work Conference when the government stated that “Prudent monetary policy should be kept neutral, the floodgates of monetary supply should be controlled, and credit and social financing should see reasonable growth”, according to an English-language report in China’s state-run Xinhua news website.

These plans see China’s expansion predicted to slow to 6.5% – the lowest pace since 1990 – in 2018 as the government led crackdown on debt risks and factory pollution drag on overall activity.

There are a variety of macro-financial and geopolitical risks surrounding China’s transition, that could cloud the outlook. Given those risks and China’s key role in the global economy and in global trade, the probability that global financial markets will be further impacted by a slowing and tightening China during 2018 is high.

Our article next Thursday will explore in depth what impact the slow down in China is already having worldwide in terms of trade and the global economy.

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