I found this article on Medium (written by a fintech firm) that explains how it works with slightly more detail and specificity, if anyone is interested:
https://blog.sendwyre.com/cny-vs-cnh-rates-whats-the-differe...
* It is not a democracy.
* Citizens lack certain social freedoms that people in other developed countries take for granted.
* Properly speaking, it is not a capitalist system, as there is a lot of investment, including by state-owned enterprises, that seems uneconomic (extreme example: ghost cities).
* According to numerous media reports, its financial system has been plagued by bad loans for many years, so far without consequence (a quick Google search for "China bad loans" can verify it).
* Its national accounting figures (e.g., GDP) are reportedly "managed" (or less charitably, cooked) and therefore cannot be taken at face value.
* Its money supply, e.g., as measured by M2, appears to be much greater than levels that would be considered ludicrous in other developed economies.
It remains to be seen whether this latest "pinch" of liquidity in the banking system is the proverbial canary in the coal mine.
I don't think that anybody, or even the head of Chinese central bank himself knows how Chinese economy works, except for the fact that it does.
When I lived in Canada, I shared apartment with a power couple from Beijing: a central bank worker, and a former Huawei senior engineer (though both were from Shaanxi originally.) A girl who worked in the central bank for her entire career were telling that just understanding everyday workings of the system was beyond PBOCs most senior analysts, giving the example of how PBOC took years to trace missing billions of rural lending cooperatives that went bust mid nineties, or how the entire PBOC analysis and statistics wing was unable to calculate country's real current account changes with any level of certainty.
While Enrons happen, a fundamental aspect of Western-style accounting is legally-mandated transparency (at least to someone, somewhere).
Without a standards-based legal system, what's to stop anyone from cooking the books?
And if every ledger is a lie to some degree, then aggregating those just produces bigger lies. Until you're finally left with the "unable to calculate [...] with any level of certainty" answers to a host of important economic questions.
Sounds familiar from the 1980s...
The definition of capitalism doesn't require that the capitalists are competent.
I notice that China's M2 is $27.52T -- which is roughly equal to the US and the EU combined (ditto for M3). Considering China's real economy is roughly a quarter of the size of the US and EU combined, how can it sustain such a high M2?
I ask on the tangent that it seems like China has ridiculous amounts of cash to GDP, so it seems like defaults should be extraordinarily rare.