Summary. In 2015, Premier Li Keqiang broke new ground when he said China is preparing for a “new normal” as the result of slower economic growth. However, he focused his speech on the shining glory of new industries – rather than a realistic appraisal of the nuts and bolts of deleveraging. This has given rise to a debate about what China’s policies will be as GDP growth winds down. Will stimulus continue? Will there be reduced growth in bank loans and the money supply?

We believe that China is acknowledging the “new normal” in a series of policies that are designed to adjust the economy to slower growth, a kind of unofficial reform. Chinese policymakers have been busy designing and implementing significant changes in China’s economy – but they have not been announcing these as part of a major change in policy. There are two reasons for this. First, there is significant opposition to any retrenchment from pro-growth stimulus among senior leaders, including Premier Li Keqiang himself. And second, senior leaders do not want to hint at a slowdown for fear of losing political support among the Chinese people.

We believe, however, there is a significant change underway. These policies could help pave the way for a manageable decline in growth – although it’s too early to tell how effective they will be. They could also offer opportunities for foreign investors to acquire distressed assets.