With Chinese President Xi calling for a heightened effort to Tomorrow Never Knows reduce systemic financial risk, regulators have started to tackle — while we believe China’s economy should hold up well going the bloated shadow banking Sysiem Sine taking office in into the 19th Party’s Congress this autumn, its growth is likely February, Guo Shuqing, China's top banking regulator—with 9 decelerate, and the lagged effects of the tightening measures the nickname “Whirlwind month for his no-nonsense on the shadow banking system and on the housing market management style—has already issued a series of directives to could become quite visible by 2018. Housing price changes reduce leverage. For example, banks were asked to implement — oud be flat or even negative by this time next year. higher standards for interbank lending and for selling third- ; . . ; ; Ith d ‘ f If the past is any guide, Chinese policymakers may once again party wealth management products (a primary source o l o, . . ; F Pa) oosen property purchase restrictions next year to stimulate funding for the shadow banking system). In April, China's top con -_ ; : ; growth. Therein lies the moral hazard—it is well known that insurance regulator was detained for corruption, and the . i : : ; : . ds ; . Chinese policymakers would not risk a sizeable correction in regulatory agency has since taken disciplinary actions against : : f tis : : the housing market, and therefore would reflate again to some high-profile insurance companies that have deviated . : a . . : . strengthen economic growth. However, with property prices in from the core insurance business by using shorter-term funding ae _ : . ae China’s tier-one cities already on par with or even exceeding to finance corporate takeovers, as well as overseas acquisition . ae . . — those of major global cities, it will be hard to rationalize another CHART 4: YEAR-OVER-YEAR CHANGE IN CHINESE IMPORTS (BILLIONS OF USD) 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% 201