Tuesday , May 17 2022

China's gas and brakes at the same time: – The markets can be too positive – China – Overseas


РThis is a down down adjustment, which has been well priced for the markets. The decline in growth estimates arises from structural changes, while the authorities believe that economic policy can expand to contribute to the growth that does not dramatically reduce, says the economist DNB Ole André Kjennerud.

One of the actions that Chinese authorities have announced are huge tax cuts and infrastructure investments to keep the economy moving. The government budget deficit is expected to rise to 2.8 per cent this year from 2.6 per cent last year.

Kjennerud believes that the Chinese authorities give gas through politics of breadth, while at the same time slowing down, among other things, tightening the credit management.

– Gas and brake at the same time make the effects on economic growth more limited. The adverse risk is limited by this, but it also applies to the expiration risk, he said.

After China news from China, stock exchanges rose in China, while developments in other stock exchanges in Asia were negative. Much of this is attributed to the uncertainty about the discussions between China and the US on the ongoing commercial war.

Expected limited effect

Although Kjennerud believes that the adjustment is down to communicate well to the markets, he / she believes that the markets could have been too bositif.

– There has been a lot of positive news from China, and it seems that the markets have understood that it looks brighter in China. But I can interpret that the markets could have become too positive by believing that China will repeat many of the stimulating responses during the financial crisis. That does not really, he says, stating that China slows down at other points, such as credit access and housing construction.

– Restrict the impact of the expansion policy on economic growth.

Handelsbanken also says that the adjustment is down from growth targets and more public investment as expected.

"China's growth is in a long-term development where structural conditions, such as the labor fund are not as big as before, and the business sector is moving from more advanced products, helping to prevent growth over time. Now there is a balance that does not provide for the economic braking at the same time as it does not allow further credit growth, says Marius Gonsholt Hov, a senior economist at Handelsbanken.

Strong debt growth

From 2018, China had a debt burden of 273 per cent of GDP, but most of the debt in the private sector. The Government debt was 55 per cent of GDP.

Information believes that increasing government debt is not necessarily a big problem.

– There is a shared view of how big the problem of debt growth is, but I believe that, as long as the debt is funded at home and through its own currency, this goes smoothly.

Handelsbanken states that tightening the growth of credit has contributed to slowing down the growth of debt, which reduces the risk of the economy.

– It has moved to the real economy due to the fact that investments have dropped. If the Chinese economy has nurtured a large imbalance, this is an uncertain issue, but credit growth has declined clearly in the light of the measures implemented, says Gonsholt Hov.

War of trade

As well as underlying basic growth, China's economic growth depends on negotiations to give up the US military war.

Kjennerud believes that this is the biggest uncertainty for the Chinese economy.

– But it seems likely now that it will be a kind of answer. If it does not get normal, it's likely that no targets arise. DNB is more optimistic here than I've been in the past.

Handelsbanken also says that the big question that is going on is the trade negotiations between the United States and China.

– Many state that they reach agreement, but we do not know the details, says Gonsholt Hov.

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