It's official: China has bottomed out

China's economy has fundamentally stabilized with robust growth and its currency is no longer unduly burdened by depreciation pressure, says Li Keqiang, who later adds that the 2016 target of 6.5 to 7 percent GDP expansion will be met.

As well, the central bank reports that the vaunted "L-shaped" recovery has been achieved:

Li’s expression of confidence in the nation’s economic outlook follow similar signals from the central bank this week. Better-than-expected lending and money supply data for August show the economy has bottomed in its “L-shaped” recovery, a central bank newspaper said in a front-page commentary on Monday.

Though we'll need at least another month or two of data to genuinely confirm that Chinese growth has bottomed, the confidence of these statements is still notable: Chinese officials at this paramount level are not given to exaggeration or hyperbole.

This comes as more doom-and-gloom is being touted by Western financial outlets concerning Chinese debt levels: this time, it's the so-called "credit-to-GDP gap", measured at an eye-popping 30.1 percent (where anything over 10 percent is a red flag).

Taken in isolation, however, this figure easily exaggerates the gravity of the situation. It would be far more alarming in the absence of evidence that Beijing is succeeding in engineering a soft landing; as more such evidence comes in, initial proof of deleveraging can be expected to start trickling in, as well.

Now that warnings of Chinese financial meltdown have been pervasive for over a year, both experts and the general public in China can more confidently push back against the pessimism with an appreciation of the nuance of their socioeconomic system which makes direct comparison with the West implausible. The high debt figures and debt-to-GDP metrics in themselves mean a lot less than they would in a Western system; the overriding concern in China has never been a broadly cascading seizure of credit but rather a deteriorating ratio of credit growth to GDP growth, which now appears increasingly unlikely.

It has been said on multiple occasions in 2016 that it now takes four yuan of new credit to generate just one yuan of additional GDP, but this ratio appears to have been temporarily inflated by the massive first-quarter stimulus, which blew year-on-year credit growth out of the water. As such, it has since inevitably declined, though still uncomfortably high; there's little reason to doubt, however, that the decline will continue.

Back on February 22, in a draft post for this blog, I had noted:

China is now embarking on a systematic redistribution of wealth from the state to the household sector. To pose it in Xi Jinping's anti-corruption terms, it means a massive expropriation of "gray income" from the corrupt bureaucracy and its cronies to the exploited masses of workers and peasants, to allow this still subsistence-poor majority of the population to join the ranks of the urban middle class.

The big wild card over the remainder of the year is likely to be the yuan's exchange rate. Judging from this now often-quoted interview with PBOC governor Zhou Xiaochuan, China recognizes the importance of stabilizing it.

Some seven months later, these clear imperatives that Beijing had early this year in the face of unprecedented uncertainty over its ability to pull off a difficult economic transition are beginning to be addressed. It's early innings of a long ballgame, but at least the players have all shown up, healthy and in high spirits to notch the win: it was the prospect that the battle was over even before it began which so deeply upset the world last winter.