For all those who believe China will continue carrying the world on its shoulders (we guess after yet another 2 week failed sting at US-based global growth "leadership", inverse decoupling is over yet again) we have some very bad news. None other than traditional permabull in all maters financial, Citi, has insinuated the sun may be setting on the great Chinese "growth case".
Citigroup expects China's High-Speed Rail tragedy could mark "a possible turning point in the China growth model;" it says it's not clear currently what impact the accident may have on the planned leadership reshuffle next year, but the accident could become a painful lesson for officials. Citigroup says authorities may choose intentionally to slow GDP growth gradually but firmly to 7%-8% in following years and spend more time fixing problems created by artificially fast growth. Among individual sectors, Citigroup expects airlines will likely benefit near-term from reduced HSR competition, capital goods should soften a bit, unless the demand for automation/machinery due to wage inflation clearly outpaces the slowdown in investment, while commodities should be affected negatively if China slows infrastructure investment.
In other words: China is done importing US inflation. Needless to say, if Citi is even remotely correct, this is a revolutionary, even paradigmatic for all you scrabble fanatics, transformation that will push global growth materially lower, and will absolutely necessitate numerous rounds of monetary easing from the DM's central banks to offset the loss in Chinese "growth." What this means of DM currencies, and for their natural hard assets replacements, is all too clear.
h/t London Dude Trader