没啥要说的，发一篇笔记。
There are a few new factors to be taken into consideration:(1)central bank has not pumped liquidity as recklessly as it used to; foreign reserve and thus base money began to shrink;(2) the leaders emerged as vocal state capitalists;(3) internet and media control has tightened to the degree that bad economic news don't get a chance to spread;(4)The Chinese dream, one belt one road and rallying stock market have consumed people, diverting their attention from contemplating the negative side of the story.
The question is, would these factor change the dynamics of the crisis or how it will unfold?
(1) During the decades of forex manipulation, our central bank had been a lose cannon with little control on how much base money it issues. It used reserve ratio requirements almost exclusively in containing inflation. It soon noticed that money creation do not follow the typical waterfall pattern, where liquidity eventually end up in private consumption and drive up prices of basic needs. Instead, most of the money end up in capital investment and saving accounts. It caused a commodity boom( but the boom was necessary for a country this large to move at this pace. Without the price signal, the growth would have been under supplied. )  For these reasons or maybe others, the central bank had always set the monetary policy on the lose end. What happened next was a spurt of high inflation, mainly driven by speculation rather than consumption, exemplified by the sugar, garlic and ginger price bid-up in 2010-2011. Since then, we have slowly let go of the forex manipulation scheme, as one can see from the declining pace of rise in the forex reserve.
Enough of history. The past 8 or 9 months saw an insignificant yet historical decline in forex reserve, suggesting the act of printing money has turned from passive to active. The central bank loaned out 3-4 trillion CNY to other depositary institutions. Knowing the crisis the economy faced, it was quite surprising to see that the base money creation was limited at single digit, although the adjustment on reserve ratio allowed the money expansion to tick slightly higher than 10%.  Why didn’t central bank take bolder moves? One obvious explanation is that the new leaders are well aware of the danger in QE, so that they are hoping to find other cures, or saving QE as a last resort. Another explanation rests on institutional imperatives -  maybe the central bank were reluctant to take bold moves in any circumstances, so it didn&# 39;t adjust reserve ratio enough in the past decade when it was printing base money involuntarily, and it is now not printing enough base money when it is their turn to dial up.  I am 70% for the first explanation, mainly because central government is the one to set the annual GDP target, it was the one who set the GDP lower,  the monetary policy simply followed.  There is no concrete evidence to support this view.
(2)The public sector as a percentage of GDP has been shrinking in the past decades, at a pace of about one percentage point per annum. This happened despite the private companies generally do not have much access to formal financing, while the public sector is swollenwith debts. A natural leap for this country would be to shuffle financing from the public sector to the private. This is what the government is claiming to be doing with reforms in banking in the past two years.  If these reforms take effects, many public sectors loans that are non-performing will be exposed. This I have previously estimated at a count of 20-30 trillion CNY. Behind these loans are projects that may take too long to realize meaningful profit or downright waste of money due to corruption's side effect. They can usually be restructured to pay back in maybe one or two decades, often impartially.  The key is to contain the risk to these 20-30 trillion bad debt, not to throw more good money in.
Having said that, our leaders don&# 39;t seem to be pursuing this route. Instead, the following alternative measures were planned or in progress: /1/through injection of private money, e.g. PPP, the troubled public entities hope to ease the risk of default; /2/ through reform and mergers, the leaders hope to improve overall performance of the public sector; /3/ bundling the good assets with the bad assets, to average the debt paying capability, e.g. Asset backed securitization.
Looking at the latest SOEs report, one may notice the assets and liabilities continue to grow at a faster pace than equity. It rules out the possibility that the injection of private money could be utilized to reduce corporate debts.  The reason? Maybe the government is currently focused on deleveraging the local government , or maybe it just doesn't have enough control on how the money from private sector should be spent, a typical problem with SOE governance. All in all, the logic behind these policy actions are averaging out the risk now and improve performance later. However, It was concrete both in theory and in practical, Western and Chinese, that improving the overall performance of the SOEs may be so difficult that the little improved margin will be swallowed by increased complexity of economic activity. I am inclined to believe it will fail straightaway, the reform on SOEs is likely to be, as it has always been, wishful thinking. On the other hand, meshing debts and making them look less risky is doable. It is possible to avoid an imminent crash and a recession that typically follows it. In fact, the officials may argue, even a crash will not erase bad debts, the losses still have to be made up sometimes later, so it is better to avoid it. This argument is turning a blank eye to the incentive system that is the key to modern economics. To be specific, if trillions of private money were to be channeled to wipe the public sector&# 39;s ass, we might end up with a meaningful portion of population caught up in debt so that they cut down on consumption or capital expenditure. Meanwhile the illusion of solvency keeps the public sector growing, continue to turn up one ill considered projects after another. Just when will the next bigger crash awaits depends on how well the profitability distribution look like.
 (3) usually the measures discussed above do not work as intended. At some stage, an catastrophic event will kick off a chain reaction, a panicky contagion, and expose the half secretive operation and its intents to the public. This understanding of the chaotic system has always guided my analysis. However, in recent months, I see public opinions and media releases go increasingly monochromatic. Bad news are often delayed for publication for up to two weeks and when they do little coverage were given.   I could not determine, merely from this observation, to what extent this uniformity of press voices was a result of state suppression. It is possible that they are simply adaptation on media companies side to the ongoing bullish mood among readers.  If the culmination of opinions is a result of media control, I have to say it is more than successful, and may make possible future catastrophic event disappear from the pubic view. But I am still inclined to think this phase will only last as long as the bull market itself. It requires more data to clarify.
(4) diverting pubic attention has been the predominant tool to buy time for reform, whether in the form of Sino relation, anti corruption or a rising stock market, they have been proven to be an indispensable tool for economic management. The extent of the success startled me, leaving me wondering whether the education system that taught us to believe things with no doubt is finally paying off. Anyway, just how easy the pubic were manipulated made me realize the key factor of free economy- individual decisions, can be pretty much turned off in this country, if that is what is needed. I am still struggling with this, trying to figure out how far it can stretch. If indeed far enough, the measures in point(2) shall be easily implemented. In that case, neither a crash nor a recession will we encounter, instead a prolonged depression will be in some years, if not a decade, awaits us.