China’s economic recovery is on a shaky and uneven path. While the country posted a 5.2% GDP growth in 2023, which is in line with forecast, the reaction from investors and businesses has been rather muted.
No doubt the Covid-19 years have had an effect. The crackdown on the real estate sector and tightened tech regulation, arguably intended to redress the excesses that have emerged following turbo-charged expansion of the past many years, has slowed activity. Add to that is the ongoing trade tension with the US that has shifted supply chains and forced a rethink among the largest companies on the best way to manage geopolitical risks.
Indeed, confidence has been shaken. It is unlike the China that many have come to know of during the past decades of rapid growth. Instead, China is now facing the triple threat of deflation, de-risking, and deleveraging coming at the same time.
Global investors are standing aside from participating in the country’s capital markets. The stock and bond markets recorded outflows for most of the past two years. Predictions of a stronger turnaround have so far been proved wrong further dampening confidence. The elevated level of local government debt has not helped casting a dark cloud on what’s ahead.
Regulators have rolled out market-friendly reforms to facilitate investor access. For example, bonds traded via the Bond Connect scheme are now liquidity eligible, the Wealth Management Connect for the Greater Bay Area has been further enhanced, and the cross-border pilot programme for the digital yuan has also been expanded. Meanwhile, measures to revive the property sector have also been rolled out.
The monetary authority has cut interest rate to stimulate the economy. Local currency financing has become the preferred channel as many have switched out of the G3 bond market. China’s capital markets are vital to support the pressing needs of today and also its financing requirements in the coming years.
To be sure, amid the dark clouds there are silver linings. For example, China’s pivot to support the electric vehicle ecosystem has been an unqualified success. The country’s dominance in EVs has helped to catapult it to become the world’s largest car exporter in 2023. Commitment to renewable energy has passed a new milestone in 2023 as renewables such as wind, solar, hydro, and biomass energy surpassed thermal power for the first time and now accounts for half of the country’s installed power generation capacity.
The growing adoption of the Fourth Industrial Revolution technology from artificial intelligence to big data and 5G, is transforming commerce and industry. The prevalence of e-commerce, adoption of high-end manufacturing, rise of smart cities, and improved healthcare are critical to ensure the economy’s competitive advantage.
These complex challenges and emerging opportunities of what’s ahead make investing in China one of the most difficult balancing acts in the coming years. Sceptics are aplenty. But as the world’s second largest economy, China remains a market that is too big to ignore. With more measures underway in the coming months, will confidence return?
The Asset, is pleased to be hosting the 19th Asia Bond Markets Summit – China edition. Organized in association with the Asian Development Bank, the summit is the region’s longest-running fixed-income summit which brings together issuers, investors, policymakers and other stakeholders involved in Asia’s bond markets.