China confronts the ‘Impossible Trinity’

China’s problem: People cross a road after work in the financial district of Pudong in Shanghai. Given the need for monetary policy autonomy, China has to trade-off between maintaining currency stability and its capital exchange control stance. – Reuters

BUSINESSMEN and investors began 2016 expecting firmer growth, led by US and from consumer spending buoyed by cheap energy.

But things were looking better than they really were. True enough, the outlook has since fast deteriorated. The new monkey year brought on early enough its “monkey” business: recent equity market turmoil, disappointing economic growth, unpredictable exchange rate volatility and the impact from falling oil and commodity prices – all indicative of a maturing financial cycle, particularly in emerging markets (EMs) and also, of shifts in global financial conditions.