‘Minimum Necessary’
“The authorities are trying to calm down leverage and housing at the margin but will not go any further than the minimum necessary,” he said. “If it looks as though regulatory tightening is delivering unfavorable outcomes, and risks any form of instability, you won’t be able to say the world ‘backtrack’ fast enough.”
As long as growth remains stable, though, the regulatory moves may continue. That would be good for the economy over the longer term, said Alex Wolf, a Hong Kong-based senior emerging markets economist at Standard Life Investments Ltd. "Successful efforts at deleveraging and reducing credit to nonbank financial institutions can reduce overall systemic risk."
Two months ago, Chinese markets were a picture of calm, with mainland stock volatility near the lowest since 2014 and bond yields falling as money-market rates subsided. Tuesday, the Shanghai Composite closed up less than 0.2 percent, after sinking 2.3 percent last week.
For Adrian Zuercher, head of Asia Pacific asset allocation at UBS’s private banking arm in Hong Kong, the weaker relationship between Chinese shares and other markets is a good thing, and is likely to become more marked.
“All these regulations that are taking place are done in a way that should make China less risky,” he said. “The economy is on a solid footing and that’s why they can do some of the measures. We will probably see more international investors coming into China on the fixed income and equity side.”