As with most everything I write for BloombergViews, I want to write a little follow up especially as I have already gotten a number of messages asking follow up questions.

I am not saying there will never be a financial or economic crisis. I am saying that a financial crisis will only happen as after all other options have been exhausted and no other options are left. Beijing will employ every tool possible to prevent some type of major dislocation. As an example, while we can debate the reasons and wisdom of it, the US was willing to let significant financial institutions go bankrupt. Right now, I think it highly unlikely that Beijing would let any financial institution of any real significance collapse. They won’t let any firms collapse much less the stock market. I see little to no evidence that Beijing is willing to even seriously address some of their economic and financial problems despite press releases to the contrary. Their entire strategy appears to be paper things over and deal with it later. It cannot be stressed enough that this is not because I think China has chalk full of top flight economic policy makers. It is primarily because if you look simply at the economic indicators, yes, the risk is elevated and increasing. However, this clearly overlooks the political imperative. Whether it is propping up every bank or firm just so they don’t have mass layoffs or shutting down the internet to prevent communication about economic problems. The political calculus about how a government will handle any potential economic or financial dislocation is radically different. The objectives of Beijing policy makers and other policy makers are very different. The current leadership is acutely aware of its place in history and the comparisons to the USSR. They are absolutely determined to not suffer the same fate. Despite talk of delveraging, credit growth continues to expand far more rapidly than GDP growth because quite simply, they are not willing to tolerate any type of official real growth slowdown. Given their concern over this, it isn’t that China will never see a crisis of some type but rather that they will exhaust every means necessary before they yield to something they just cannot stop.

Given everything that is happening in the Chinese markets, I want to hit a couple of major points