Could China’s economic woes boost some Western markets?

chinas-economic-woes

SUMMARY

China’s equity markets are down by more than half since early 2021 amid the state’s failure to boost domestic consumption and other policy mistakes. We think the ongoing difficulties could boost high quality US bonds.


China’s equity markets are down 20% from their high of this year and 54% since Feb 2021. Global and domestic investors are wondering what caused China’s major change of fortune and what can be done to reverse it.

Over the past 3 years, China’s current administration has been willing to derail national champions in the name of “common prosperity”. From e-commerce to online education to car-hailing, China has impacted corporate decision-making, sacrificing rapid growth in revenues and profits for greater state control. As technology emerged as a national security issue for the West, Western governments sought to isolate their markets from China’s tech products. Finally, China’s alignment with Russia over the Ukraine war caused foreign direct investment to plummet.

At the center of China’s malaise is a growing real estate crisis. China’s highly indebted property developers seem certain to drive a wave of corporate defaults. More than 700 unfinished projects await completion nationally.

China has not taken sufficient actions to boost domestic consumption and make targeted investments in growth industries. While we don’t believe this will impact 2023’s overall economic growth rates significantly (as much as many assume), it risks a spiral of debt and deflation if its policies do not spark a recovery through 2024.

Any procrastination in stimulating China’s economy risks self-reinforcing negative economic effects. This may result in a “paradox of thrift”. As households seek to protect themselves by securing their balance-sheet resources, the economy may collectively face insufficient demand causing government and bank debt burdens to rise disproportionately.

Many have argued that the disinflationary impulse of Chinese exports on US consumer prices during the past two decades had already run its course. If China does not turn around, it would be another strong factor weighing against the popular view that the US is facing a higher long-term trend rate of inflation.

Insights

Read some of our perspectives into the key issues for you and your wealth.

Insights

Read some of our perspectives into the key issues for you and your wealth.

Contact us

Contact us

To help put you in touch with the right Private Bank team, please answer the following questions.

Are you an existing Private Bank client?

Are you an existing client?

Please fill out the form, so we can contact you.

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant  privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

What profile best describes you?

I would like to discuss an investment (USD) of

I would like to discuss an investment (USD) of

I would like to discuss an investment (USD) of

Thank you for your interest in Citi Private Bank.

Our services have a minimum investment level of $5 million.

Based on the information provided, we believe that a Citigold relationship may be most appropriate for your needs.

To find out more: Visit Citigold

Thank you for your interest in Citi Private Bank.

Our services have a minimum investment level of $5 million.

Based on the information provided, we believe that a Citigold relationship may be most appropriate for your needs.

To find out more: Visit Citigold Private Client

I am interested in

Aircraft Finance
Art Advisory & Finance
Banking
Custody
Family office
Investments
inerested_in
Lending
Real Estate
Trust

Please select at least one.

I am interested in

Aircraft Finance
Art Advisory & Finance
Banking
Custody
Family office
Investments
Law Firm
Lending
Real Estate
Trust

Please select at least one.

Job title & Company

Job title & Company

Location

Location

How would you like us to contact you?

How would you like us to contact you?

Please enter your contact details

Please enter your contact details

How did you hear about us?

How can we help you?

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

How did you hear about us?

How can we help you?

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

Thank you for your interest in Citi Private Bank. A member of our team will be in touch with you shortly.