West once again upbeat about China’s economy

For more than two years now, the Chinese economy was seen to be in deep trouble, especially with the meltdown of the property market bubble. Chinese authorities were trying to save the situation even as growth rates slowed down, and factory output was down significantly. There was talk of American businesses moving out of China and moving into Vietnam, the Philippines and India.

But there is a change in the air, and the market sentiment about China in the West has turned from negative to positive. This follows the easing of interest rates, and the rules for buying property. This is as a stimulus measure, and the government is promising to take more measures to boost the economy but incrementally. This has spiked the stock markets, and this in turn has made investors in the West smile. The Shanghai Composite Index moved up eight per cent, and it moved above the 3,300-points level. Similarly, the Shenzhen Component Index moved up 10.67 per cent, and the technology portfolio-based Chi Next in Shenzhen moved up 15.36 per cent. The combined trading value of Shanghai and Shenzhen bourses was $371 billion.

It is interesting that this change in market sentiment comes at a time when China is celebrating the 75th anniversary of the Communist Party coming to power in the country in 1979. China as a one-party country like many other communist countries had gone through tough times, both politically and economically. But the economic reforms introduced by Den Xiaoping pushed China to the second largest economy in the world. But after the Covid outbreak, things had turned badly for China, and even before that economic growth had slowed down. For more than 30 years, China had progressed at a terrific speed of double-digit growth. And then growth dropped to six per cent, and the phrase ‘the new normal’ came into play.

Along with economic slowdown came the harsh political measures under President Xi Jingping, who won a rare third term as leader of the Communist Party of China and of the country. The government’s policy measures last week helped the economy, and China is once again creating the buzz among Western financial markets.

There is not going to be a flood of Western investments in China, but Western investors are certainly turning to China, and they feel that China is once again a promising investment destination. “We’re going to be very disciplined but in aggregate we feel there’s more upside than downside,” said Gabriel Sacks, emerging market portfolio manager at Abrdn. He said the group had brought Chinese stocks selectively.

Despite Monday’s market rally, China’s macroeconomic problems remain. Consumer expenditure is lagging behind other advanced economies, and the property market is riding on a quick-profits boom sentiment. The experts believe that China needs a sustainable property demand for its economy to grow long and steady. It has to be seen whether speculation in the property sector would be reined in.

What is undeniable is that there is a change in mood about China, inside the country and abroad. There is the glimmer of hope that China can add to its robust growth rate. The West is looking for places to invest, and China is the most tempting market. The political tensions between the United States and China notwithstanding, the turnaround in the sentiment about the Chinese economy is good news for the global economy at large.

The global economic growth has been hovering at the low levels of 3 per cent, and the positive market vibes from China could spur global economic growth rate as well. This also brings home the harsh truth that along with the US, China too is the lynchpin of the global economy.