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.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
A Budget for recovery and growth - but who will foot the bill?
Rachel Reeves wants to plug the £22 billion black hole that Labour says it inherited from the Conservatives, will today’s Budget do that and who will pay for it?
By Kalpana Fitzpatrick Published
-
Autumn Budget 2024: Pensions and Aim shares to be taxed in IHT crackdown
The chancellor has announced that pension pots will be liable for inheritance tax from 2027, while Aim shares will be hit a year earlier. Critics call the measures a “blow for savers”
By Ruth Emery Published