The word “stimulus” has always had a negative connotation to it in the common parlance of China’s monetary authorities. The official line has always been that China neither needs nor wants stimulus, and that the focus is on reforms to put the slowing economy on a stable footing for the long run.
But the cooling property market, is causing concerns that the official goal of 7.5% growth might not be achievable. Last month, the Chinese government came out with an array of adrenaline shots aimed at boosting the sagging growth. The term was wisely chosen as “mini-stimulus”. The government pledged to invest to the tune of $128 billion in the railways, launch huge water-management projects and other giant infrastructure initiatives to increase spending and pick up the growth levels.
Many observers consider this a far cry from the $641 billion stimulus that the government launched in 2012. Though the authorities have other weapons, such as lowering interest rates and reserve ration in their arsenal, it is paramount that they act swiftly and decisively to bolster growth.
How China negotiates slow-down matters to the world economy. The deepening concerns of the world’s no.2 economy are being felt across all the continents. Below is a graph that shows the total exports consumed by China:
The following are the countries most dependent upon China
Therefore a slowing China is not just a domestic issue, it has broader implications for the other nations that depend on China. This would trickle down to corporates that have either direct or indirect exposure to China, as well as world stock markets that are more interconnected than ever. Individual investors have to stay cautious on how this might affect their investments.
Contact Dino Zavagno MD at Gladstone Morgan or a member of his team to discuss how the China Story will impact your investments.
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