China's US$11 trillion economy and markets are in a tug of war

Hong Kong

CHINA'S run of solid economic indicators proved little consolation for its shaky financial markets in April. The dichotomy stems from a shift in the leadership's focus towards reducing leverage - one that's set to determine whether growth joins asset prices in heading down.

Economists are practically unanimous in saying that reduced debt loads would be good for China's longer-term health. The big unknown is whether officials can manage that without a dose of short-term pain. As UBS Group AG analysts put it in a note last week: if authorities' initiatives are "not managed well, it could lead to a rise in credit events, excessive liquidity tightening, faster-than-intended slowdown of credit growth, and greater market volatility." What started in the fa…