Chinese storm clouds still loom, and things could get worse

Rome

THERE are no signs that the storm clouds over Beijing and Shanghai are abating. Chinese stock markets have fallen about 20 per cent this year, with few signals of stabilisation. The so-called circuit breakers have failed. Risks have grown through massive stock-market support from government funds (the "China plunge protection team") and Chinese banks' loans of over US$200 billion to institutional investors, all under the benign eye of the People's Bank of China (PBOC).

The PBOC faces serious difficulties in managing the renminbi, under pressure from the US interest-rate hike. The central bank has run down its foreign-exchange reserves from US$4 trillion in mid-2014 to US$3.3 trillion in December in a bid to stem the currency's decline.