China faces challenges

I have kept Michael Pettis January summary of the four challenges facing China:

1. China is over-reliant on credit to generate growth;
2. Attempts to boost consumption will reverse the long-standing subsidy of new investment;
3. Attempts to resolve excess capacity also slow growth; and
4. Unrecognized bad debt on bank balance sheets means that growth is overstated.

China’s Shanghai Composite Index is again testing support around 2000. Follow-through below 1990 would signal a primary decline to 1850*. Reversal of 21-day Twiggs Money Flow below zero would warn of medium-term selling pressure. Respect of support is less likely, but would suggest another attempt at 2150/2250.

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850