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A screen shows media coverage of Chinese President Xi Jinping delivering a speech at a summit of the Chinese Communist Party and global political parties, as people walk past a shopping mall in Beijing on July 7, 2021.

Jade Gao / AFP via Getty Images

China’s economic woes could worsen. The Wall Street Journal reports that President Xi Jinping is increasingly scrutinizing the links between the country’s public banks and private companies.

Authorities are starting inspections of 25 financial institutions at the heart of the economy, the newspaper said, citing people with knowledge of the plan.

The move comes as China grapples with a slowing economy amid outbreaks of Covid and a power shortage that have hampered factories and supply chains. At the same time, XI exerts increased control over the economy, launching a crackdown on big business that could exacerbate China’s economic woes. The scrutiny of state banks is another step in this direction.

“This worsens expectations of the slowdown, and if anything suggests a comfort level with slower growth if they are prepared to weaken credit growth further at this point.” “Craig Botham, economist at Pantheon Macro focused on China at large, said by email.

There are also growing risks to growth due to a heavier state of the economy. “The possibility of resource misallocation seems great, compared to allowing banks to lend to the private sector,” Botham adds.

The Chinese economy has not yet fully recovered from the Covid. Tourism revenues, for example, have only reached 60% of pre-pandemic levels recently, with long-haul travel the hardest hit as China has faced sporadic outbreaks of COVID and people have chosen to spend more. locally, according to a customer note from

Bank of America

of the Fixed Income and Global Emerging Markets Economics team. Policy makers said weak consumer data illustrates the need for policy easing.

In its latest forecast for global growth, the International Monetary Fund slashed its outlook for the Chinese economy this year to 8% from 8.1% in July because the authorities tightened lending conditions more than it did. planned. IMF chief economist Gita Gopinath noted other challenges China faces, including struggling real estate developers and the implosion of the China Evergrande group, as well as supply chain disruptions.

There could be a silver lining: more economic hardship could trigger a stimulus. Authorities could implement stimulus measures to strengthen Beijing’s control over the financial system and allow it to grant direct loans to government projects, but likely not until next year, Botham said.

While the measures authorities have taken to cushion the pain may act as a buffer, it’s also possible that Beijing has a higher tolerance than nervous investors. The

IShares MSCI China ETF

(MCHI) is down 0.29% to $ 68.83 on Tuesday and down 15% so far this year.

Write to Reshma Kapadia at [email protected]