The piecemeal stimulus approach in China is expected to limit economic growth this year, but is anticipated to yield long-term benefits.
The yuan still hasn’t depreciated below its October 2022 levels. This is a positive sign despite ongoing challenges. In terms of financial markets, the performance of the banking sector often serves as an economic indicator in any market. In China, the banking sector remained stable or even positive this year compared to its global counterparts, while US long-term bonds declined by 17%.
The Chinese government is planning to inject $7 trillion worth of savings into financial markets through economic stimulus measures; this will however take time to materialize. This will be accompanied by wage increases, which will take about a year, and a higher inflation in China.
There are two distinct economies in China right now: one centered around real estate and exports, aiming to achieve stability not growth; and another based on the service sector, indicating continued domestic spending. Technology companies in China achieved good returns. Both services and technology sectors are aligned with China’s focus on the quality of growth. This will however take time to materialize.
Valuations are currently low in China. The Purchasing Managers’ Index (PMI) is up from 49 to 49.30. The updated figure is scheduled to be announced on August 31, and any further increase would indicate an improvement of the situation.
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