Bye, China Deleveraging. Belt and road?

With China's fiscal, monetary, monetary, and credit policies all taking a pro-growth turn, President Xi Jinping's deleveraging campaign is clearly over. Or, at the very least, it goes into the freezer as long as there is no loosening of trade tensions with the United States.

But what about the other idea of ​​Xi? In Southeast Asia, the ambitious "Belt and Road" project recorded a 36% decline in investment commitments and construction contracts in the first half of the year. The reverse is temporary, according to Citigroup Inc., which expects Beijing to give in to the concerns of its partners for its "global geostrategic imperatives."

Maintaining the region's confidence in the belt-and-road can be a crucial defense against domestic fragility. The yuan is at its weakest in more than a year; the reserve ratio of banks has been reduced three times; and now, following a meeting of the State Council, the authorities promise a "more proactive" fiscal policy . The People's Bank of China will provide credit through a medium-term loan facility for lenders to buy corporate bonds – financing could be twice as high if the securities are rated AA or lower.

All this is clearly aimed at reducing the growing distress. If we take into account the recent cross failures of 13 mining bonds of Wintime Energy Co., which total about 10 billion yuan (1.5 billion dollars), the Chinese default rate could reach 0.52%, a peak of 0.45% in 2016., according to the calculations of Bank of America Merrill Lynch.

Southeast Asia and Pakistan could take advantage of the opportunity to reduce a few billion dollars in interest costs. As Beijing's attention is diverted to fire fighting in the national economy, foreign beneficiaries of Beijing infrastructure financing are required to demand – and obtain – more favorable conditions.

The new Malaysian Prime Minister Mahathir Mohamad sent an envoy to China to renegotiate loans and contracts. In Thailand, there is nervousness about a five-year plan to remodel the east coast of the country as a hub for trade and transport – and link it to the belt and the road. There is no guarantee that the next civilian government will continue to support the $ 51 billion makeover, or that it will not spend money instead for landlocked Northeast farmers. .

However, a bigger and more immediate test for China could come after Wednesday's elections in Pakistan. Opposition leader Imran Khan, while not denouncing his country's growing dependence on Beijing, does not rule out re-examining loans for a $ 62 billion trade corridor supported by the China if his party forms a government. Last year, the Pakistan rupee lost 18% of its imports of machinery and transport equipment, leaving Islamabad in the unenviable position of managing its foreign exchange deficit by borrowing even more from its regional neighbor.