China's regulatory crackdown is about to trigger a significant Australian economic correction.

There are a few realities with Chinese central banking policies that cannot be avoided . 

The recent announcement of a central bank regulatory crackdown in China is a likely harbinger of a Chinese economic slowdown that spreads to Australia.

The first reality and one of the central tenets of Hyman Minsky's well known Financial Instability Hypothesis is that significant economic contractions are often unwittingly triggered by clumsy policy inititives by central bankers.

The second reality is that the PBOC is by far the most expansionary central banking in economic history.

In 2008 banking assets in China were at $8 trillion , today they are close to $45 trillion. 

To put in in comparable terms the Chinese banking sector is 5 times larger than the US banking sector was in 2008 before the GFC.

The third reality is that the Chinese leadership already know they have a huge problem.

Faced with this they have taken the decision to "rip the band aid off" through instigating a proactive program of regulatory reform.

That is they plan to batten down the hatches and leverage the extraordinary political and social control they can exert on their people and institutions to bring the economy back under control.

I’m struggling to think of a metaphor . They have to significantly slow the construction sector (more than 25% of GDP) , which in turns means the Australian "gravel economy" that supplies these sectors will suffer significant loss of demand . 

To argue against this conclusion you would have to argue that the Chinese are willing to expand banking asset to over $100-150 trillion with 3-4 years. It has to stop somewhere and for the Chinese leadership it better to do it at a time of their choosing rather than have it forced upon them.

The fourth reality is they will crush Chinese demand for Australian housing by monitoring cash flight transactions , cash flight will have to go to bitcoin or some other country that doesn’t share its transaction data with China .

If your not aware Austrac agreed with China under joint MOU in November 2016 to share transaction data with the Chinese government.

This fifth reality means that anyone in China wanting to buy a real estate in Australia will have their transaction monitored by the Chinese government. With a maximum of $50,000 USD per citizen allowed to be transferred to any foreign account and the Australian government enabling transparency to these transactions then folks will take their cash to places that are more opaque to the Chinese government

Recent developments in Saudi Arabia reminds us that if you hold absolute political power you can simply take your political competitors money and freedom by force . The last card of a desperate government in an economic crisis is confiscation and imprisonment . Wealthy folks in China know this and are doing everything they can to get their money out. 

As Warren Buffett suggests "you only know who is swimming naked when the tide goes out" , most of the Chinese shadow banking sector will be terrified because the tides going out and half of them are completely naked . 

The Chinese government will be forced re-capitalize the system and there is likely to be hell to pay for those responsible for $4-5 trillion USD that will be missing .

It is very unlikely that Chinese bankers are anywhere near as safe from prosecution during a downturn than their Wall Street counterparts were during the GFC. Not a single Wall Street banker was prosecuted during 2008, in contrast a much bigger calamity in China is likely to fill their prisons.

We have a series of triggers now for a massive Chinese correction and a tightening of capital flight into Australian housing . 

Meanwhile we have Australian retail hitting a cyclone of Amazonian destruction as the parliamentarians play citizenship roulette every other day .

 What might have been missed by most economists, is that Ray Kurweil's theory of exponential acceleration to a potential singularity has both an economic expression and financial implication for sovereign states.

That is that imbalances and downturns for a state actor, may like Nokia, Kodak and RIM Blackberry's demise, come out nowhere with unexpected speed and financial consequence.