China delivered more weak figures on Wednesday, further signalling the extent of the slowdown in the economy. However, the negative news could be an indicator that there might be a chance for Chinese stocks to recover as policymakers consider increasing stimulus.
The world’s second-largest economy posted a poor performance as depicted in its November numbers as a result of the property-market slump and lockdown. With the announcement of the new Covid-19 variant and the resultant lockdowns ordered by Beijing in line with its “zero tolerance for Covid-19” policy, economists expect China’s economy to have a difficult period.
As a measure taken to prevent the possibility of a downward spiral, economists expect policymakers will keep stepping in, especially as the country approaches the 20th Party Congress next year, in which Xi Jinping is expected to stand for a third term.
The data capturing investors’ attention the most is related to retail sales, which is typically seen as a proxy to gauge the health and sentiment of the Chinese consumer. For property developers such as Evergrande Group and Kaisa roil, the property market figures are under close watch amidst the heavy debt troubles. November retail sales 3.9% compared to 4.9% the month before- a fluctuation caused by seasonal factors. Analysts’ consensus expectation for growth stood at roughly 4.7%.
While some might view this as an indication that the Chinese economy will not recover anytime soon, Derek Scissors, a longtime China watcher and senior fellow at the American Enterprise Institute, sees things from a more positive perspective. According to Scissors, the current release of bad economic news signals a departure from the Chinese tendency of smoothing out data to avoid reporting any sharp downturns.
“These are the lowest growth figures we have seen except in the heart of the crisis,” says Scissors. “They are being more honest (about the data). Whenever they are willing to be more transparent, it’s a positive.”
The report points to the fact that it seems Beijing is moving away from purely a purely economic growth focus and is now taking other metrics such as building a more equitable society and job creation. This new direction is in alignment with its latest determination to create shared prosperity to counter the inequality brought on by the country’s hyper-growth of the previous decade.
At the core of the conversation coming out of the annual Central Economic Work Conference is a focus on stability which could see China receive some measure of support. However, the ongoing geopolitical tension between U.S and China, ranging from delisting to investment bans, is still a major cause of concern to U.S investors. On Wednesday, the iShares MSCI China ETF (Ticker: MCHI) fell 2.4% at $62.66.
A few steps that Beijing has taken include lowering the reserve-requirement ratio for banks, which has the effect of freeing up money for lending. In a note to clients, Goldman Sachs strategists said various officials had signalled for the need for increased policy support in the housing sector. Despite the steps taken, the bank noted that there was still room to do more, especially in terms of housing, to ensure funding for developers and help in the recovery of property transaction activity in order to hit Goldman’s 4.8% economic growth target in 2022.