Features

Cracks spread in China's fragile economy

China's annual economic growth is forecast to dip below 6% in the final quarter of this year and continue to fall into 2020 thanks to weaker exports and tighter domestic credit.

Chinese Lantern Festival in Vietnam © Alamy

Vietnam is likely to be a major growth story over the next decade

The passage through Congress of the Hong Kong Human Rights and Democracy Act, which aligns the US with Hong Kong's protesters, marks a "watershed moment in the escalating cold war" between Washington and Beijing, says Ambrose Evans-Pritchard for The Daily Telegraph. Yet, for all the "ritualistic" diplomatic protests, it probably won't stop the two sides agreeing to a phase-one trade deal.

Keen on a deal

China's CSI 300 index fell back about 1.3% towards the end of last week after Donald Trump signed the Hong Kong bill. The yuan also weakened slightly. Yet China's decision to avoid trade-related retaliation it stuck to banning the US Navy from Hong Kong suggests that it does not want to upend the tariff negotiations.

There are still many sticking points, says Simon Pritchard for Gavekal Research, notably the size of the US tariff rollback and unrealistic American demands that China buy as much as $50bn in US agricultural products.

Yet the pressure is growing on China to conclude an accord. Analysts are forecasting that annual growth will dip below 6% in the final quarter of this year and continue to fall into 2020 thanks to weaker exports and tighter domestic credit. That has sparked a rare public debate in the country about what to do, says Orange Wang in the South China Morning Post.

Prominent economist Yu Yongding recently took to the pages of the Caijing business magazine to declare that "it is time to brake" the "vicious [downward] spiral" before falling growth, investment and consumer spending get worse. Others are calling for an increase in the budget deficit limit above 3% to give more room for fiscal stimulus. Yet Premier Li Keqiang has ruled out a return to the "all-out stimulus" that China tried a decade ago in the wake of the global financial crisis.

China's leaders are well aware that the post-2008 stimulus "became excessive", says Simon Hunt in Halkin's Thought For The Day newsletter. Too much of the lending and spending splurge ended up in "the stockmarket, property and other speculative activities" rather than the real economy.

From local government to state-owned enterprises to a "myriad of small banks", the indebted financial system is now paying the price. Authorities are determined not to make the same mistake again, so small, targeted stimulus measures remain the order of the day.

Look beyond China

Over the past decade about half of all global growth has come from China, notes Louis Gave for Gavekal Research. So dominant has the Middle Kingdom become that "investors have got used to looking at emerging markets through the prism of China". Yet as China tackles its debt overhang and growth slides it is not too much of a stretch to think that the best growth stories in the next decade will be found elsewhere in the likes of "Brazil, India, Indonesia, Russia" and Vietnam.

Recommended

China owns a lot more gold than it’s letting on – and here’s why
Gold

China owns a lot more gold than it’s letting on – and here’s why

In a world awash with money-printing, a currency backed by gold would have great credibility. And China – with designs on the yuan becoming the world’…
21 Apr 2021
Why China’s bad bank has some investors rattled
Chinese economy

Why China’s bad bank has some investors rattled

A state-backed bank in China, created to clean up bad loans in the wake of the Asian financial crisis, is in trouble. And it might not be bailed out. …
16 Apr 2021
What China’s new red dawn means for Hong Kong
Chinese economy

What China’s new red dawn means for Hong Kong

China has once again moved to tighten its control over the former British territory and global financial centre. What will remain of the old Hong Kong…
10 Apr 2021
Investors get a reality check in China as stockmarkets fall
China stockmarkets

Investors get a reality check in China as stockmarkets fall

The People’s Bank of China, started to remove liquidity from the financial system at the start of this year, driving stock prices down.
2 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021