Problems that hit China this summer have shown how unsure the country's political leaders are when it comes to finding economic solutions, said Ricardo Adrogue, managing director and head of emerging markets debt at Babson Capital Management.
“The problems are clear, but the policy direction is not,” Mr. Adrogue said.
“The current administration (under President Xi Jinping) acknowledges the need to rebalance the economy but appears unsure as to how to go about it,” Mr. Adrogue said during a recent visit to Pensions & Investments' Chicago office. “It has moved fast on reprofiling the debt of the local governments but has yet to succeed in replacing investment with consumption growth.
“The measures to contain credit growth have been reversed in a disorderly fashion and even the exchange rate policy seems ad hoc,” he added. “When the economy slows more than what the government appears to feel comfortable with, credit is the lever of choice, the same that was used in 2008-"09, and that has created the potential for a credit bubble.”
Mr. Adrogue also said the policy of internationalizing the renminbi for use in trade finance and investment, begun under China's previous president, Hu Jintao, in 2008, has been expanded “but with no clear consistency.”