January was the last month in which China's National Bureau of Statistics (NBS) specifically mentioned Fixed Asset Investment (FAI) of state holding enterprises (or SOE's). For the month of December 2017, the NBS reported accumulated growth (meaning for all of 2017) in this channel of 10.1%. Through FAI of SOE's, Chinese authorities in early 2016 had panicked themselves into unleashing considerable “stimulus.”

There were already signs early in 2017 that enthusiasm for it was waning. In some ways, that was to be expected since even Chinese “stimulus” isn't meant to be permanent. It was widely believed, however, that the effort would produce economic acceleration in China and therefore the rest of the world. Convention always assumes, no matter how much evidence piles up to the contrary, that “stimulus” works without question. Specifically, the private economy over there was figured to more than pick up the slack as the official effort wound down.

It didn't happen. I wrote in June 2017 of the potential consequences:

It raises further questions about official “stimulus” in the SOE channel of FAI. There are monetary as well as credit reasons for believing China's government is being restricted by these factors in a way it probably does not want to be. Taken altogether among the three data points, we therefore have to consider the negative possibilities vis-à-vis what we already see of eroding “reflation.”

We wrote about those “negative” possibilities all throughout the latter half of last year. Primary among them was the Chinese government throwing in the towel – for good. In other words, as private FAI and even the whole Chinese economy failed to further accelerate as everyone, and I mean everyone, was anticipating, it seemed inconceivable that the government would just allow that to happen.

A lot of the re-evaluating of financial and monetary risk in later 2017, I believe, traces back to this one crucial element missing from the globally synchronized growth narrative. Not only is it missing, the activities of Chinese political authorities in the months since last spring suggest they have been actually and actively preparing for the consequences.