China is facing significant economic challenges. Its private sector is burdened by debt, with substantial misallocation of capital in the real estate market, which is now shrinking. New home prices have fallen by over 5% year-on-year, and both household and bank balance sheets are under strain. This has contributed to a slowdown in M2 money supply growth, which has declined to 6.3% y/y – the slowest pace in over 25 years. The downward trend continues. According to the IMF’s World Economic Outlook, China’s GDP growth is projected to slow to under 3.0% annually, a rate insufficient to meet the country’s employment and social spending needs, which require much stronger economic growth.
Against this backdrop, and following stimulus plans announced last month, China’s National Development and Reform Commission (NDRC) said they were confident in reaching the state’s economic targets for this year and promised to do more to support growth. Notwithstanding the positive comments, the market was expecting more stimulus to be announced to fuel China’s stock rally. While there is still a lot missing on how incoming stimulus to reach the ~5% target will take shape, it is encouraging that Chinese policymakers remain committed to the growth target. Ultimately, this is important for South Africa. China remains SA’s single biggest trading partner, so any policy actions aimed at shoring up China’s economy and boosting economic growth will naturally raise expectations of a stronger trade performance for SA.
ZAR