Real pace of Chinese economic growth

Indeed, there are major questions about the real pace of Chinese economic growth given that anecdotal data appear to show a slower pace of growth, a weighted average index of bank loans, electricity production and rail freight volume points to a sharp slowing in growth (LKQ index), with this index suggesting actual growth some 50-200bp lower. 

"6.8% GDP growth is expected in China this year, which could prove optimistic against this background. While China has reacted with stimulus, still the downside risks are seen to growth", says Barclays. 

The easing was consistent with the view of USD/CNY reaching 6.8 by year-end, and notably, in recent days intervention in FX markets appears to have been scaled back. China is now expected to announce one more policy rate cut and two cuts in the RRR in Q4 2015.

It would be unfair to blame the market malaise solely on China, emerging markets have been coming under pressure for several months as Fed rate hike fears intensified and commodity prices fell all against the background of a strengthening USD and capital outflows. 

Moreover, a sharp rise in USD-denominated debt added to the pressure on EM debtors. Additionally, growth in many emerging market economies has been on a weakening trajectory for several months. Alongside these broad concerns, country-specific factors have exacerbated pressures, especially on the political front. 

Several emerging market countries are facing such uncertainties including Turkey, where there will be fresh elections after political parties failed to form a coalition, and Brazil, where President Rousseff is facing calls for impeachment in the face of recession.