Beijing is trying to fortify the world’s second-largest economy. It is working on a financial stability law that would include a fund to rescue troubled institutions. Brian McCarthy, chief strategist at Macrolens, says the purpose of the law is for China to underscore that it would not let banks fail. But Mr. McCarthy explains how this could work if only one bank is having an issue but warns that the solution won’t work if all banks are having issues. Mr. McCarthy also notes the threat the property sector is posing with a large amount of outstanding developer debt. He expects that China is in the early stages of a debt deflation process.
