The Asian market, in general, is in an economic slump. While the controversial stand and policies of US President Trump is partly to blame for this, the long-standing issues of poverty, corruption, calamities and many others have long been factors as to how the Asian market fares in the global market. And one of the most formidable markets in Asia is that of China. No other nation can beat China’s achievements and influence to the entire world. After all, almost everything is made in China, right?
However, the market is volatile. Everybody knows that. Sometimes the market is doing well and other times it does not. China isn’t exempted from this economic trend and likewise, has its fair share of ups and downs over the years. Even though the China’s economy is the second largest the world over, certain triggers can make it crash with little warning.
Benchmark equity indices in mainland China and Hong Kong closed higher on Monday as resurgent hopes for a significant public stimulus boost captured investors’ attention more than did the release of a batch of poor activity and spending data.
Weakness was evident nearly across the board and continued a trend of disappointing news from the world’s second-largest economy in recent months.
Industrial production expanded by an annual 6.5 percent in April, dropping from 7.6 percent in March and falling notably short of expectations while fixed investment data suggested a slowdown to 8.3 percent in April from 9.4 percent the previous month. Retail sales and fixed asset investment also underperformed forecasts.
“This slowdown as a result of weakening demand is also reflected in the prices of key industrial commodities like iron ore,” said Sebastian Lewis, content director for Greater China at S&P Global Platts in an email to CNBC on Monday, pointing out that the price of iron ore had dropped 30 percent since February alone.
If there’s anything that is holding up the Chinese economy, they owe it all to property investment and infrastructure. However, there is no assurance that they will hold up any longer if the Chinese market continues to decline any further.
China’s growth is set for its weakest patch since the global financial crisis as authorities pull back on the stimulus that helped the economy get off to an unexpectedly strong start this year, and keep funds tight to deter risky lending.
After clocking 6.9 percent in the first quarter thanks to spending on infrastructure and a property boom that policymakers want to rein in, analysts surveyed by Reuters reckon economic growth will just about make Beijing’s target of 2017 of 6.5 percent as it slows over the rest of the year.
Massive debt – standing at nearly 300 percent of GDP – and serious budgetary imbalances mean Beijing can’t carry on pump priming. The brakes went on in April, when annual growth in fiscal spending dropped to 3.8 percent from 21 percent the first quarter.
And worries about speculative bubbles have forced the central bank to tighten short term liquidity, while trying to keep medium term funding available for investment.
China plans on reducing debt to help the economy bounce back. The Chinese government is tightening their belt in a desperate attempt to reduce financial risks and hopefully improve the Chinese market. Their goal is to drive the economy by consumer spending but it’s a long way from now. The best solution for their financial woes involves deep economic reforms to promote sustainability and boost economic growth.
Although technically not in a recession, the Chinese economy has greatly slowed down over the last two years. Their economy is the second strongest in the world next to the US, so seeing them struggle is not a good sign at all. It is hard maintaining an annual growth of 10% when the economy matures like that of China, so their main focus should be directed towards needed reforms rather than push for more growth that the current economy can’t yet support.