Markets are sounding alarm bells about the Chinese economy, but analysts say Wall Street is missing the big picture

Chinese President Xi JinpingJOHANNES EISEL/AFP/Getty Images

  • Financial markets have been raising red flags recently regarding the Chinese economy.

  • This is because high expectations of a strong post-Covid recovery have largely failed.

  • But analysts said Wall Street is too short-sighted and does not look far-reaching.

Financial markets have raised red flags recently about the Chinese economy, but analysts say Wall Street is missing the big picture.

Growth in the world’s second largest economy accelerated to 4.5% in the first quarter from 2.9% in the fourth quarter after relaxation. COVID restrictions late last year.

However, recent data indicated a slowdown in growth in retail sales as well as a decline in home sales, industrial production and investment in fixed assets.

That disappointed investors hoping for a bigger post-COVID recovery and prompted Wall Street to cut growth estimates for the full year. Concerns about the Chinese economy pervaded the markets.

Earlier this month, the yuan fell past a Psychologically important Level 7 per dollar for the first time this year. We were expected to see the price of copper at once Big gains Due to the high demand from Chinese factories, A Four months low In the middle of May.

Meanwhile, stocks of luxury brands that rely on China’s consumer base have began to deteriorate on stagnant activity.

Chinese stock markets have not been immune to a slowdown, with the CSI 300 continuing to fall this week. At the end of April, waning hopes for additional stimulus sent the Shenzhen and Shanghai indices down 519 billion dollars in just one week.

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The stalling performance prompted Rochir Sharma of Rockefeller International to label the throwback novel “charade. “

But for one analyst, the growing pessimism about the Chinese economy could stem more from unrealistically high expectations and Wall Street’s tendency to prioritize immediate metrics over long-term projections.

“I feel sorry for these people in some ways, because every time the Chinese publish some data, they have to say something about it,” Nicholas Lardy of the Peterson Institute for International Economics told Insider.

Duncan Wrigley of Pantheon Macroeconomics said the increased expectations may be due to China’s response to the 2008 financial crisis, when Beijing pushed the economy through massive stimulus and delivered double-digit growth.

However, it has also led to a huge debt hangover that China has been working on for most of the past decade. He said that while demand is slowing, curbing debt growth is being given equal priority by party leaders.

Set the country more conservative 5% growth target in March, which the two analysts see as achievable. Although the country will avoid blanket stimulus to reach the target, it has a number of tools in place to ensure that growth continues to climb.

Despite its debt reduction goal, China could increase the availability of cheap loans to sectors in need, as well as raise the lending quota for the three major policy banks, while allowing them to invest in domestic projects, Wrigley said.

If that weren’t enough, he indicated that the People’s Bank of China could ease financial conditions later in the year, such as lowering the required reserve ratio for banks.

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But youth unemployment is still high, with a rise Geopolitical risks China may be denied access to foreign technology.

Lardy said private investment, a key source of growth in China, had nearly collapsed in the past 15 months.

He said this may have something to do with the strict regulation of Chinese business, as President Xi Jinping expands the state’s role in the market, and discourages business owners from investing in their companies.

“That’s the big downside that I worry about more than all the other things we’ve talked about. Why is private investment so weak?” He said.

Read the original article at Business interested

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