Traditional data becomes less representative of the real Chinese economy
Investors: pay more attention to policy changes than predicting headline GDP or other mainstream data; focus on new growth engines, such as artificial intelligence and information technology
In the last update of our review of 2017, we highlighted one conviction that the dramatic turnaround of markets and investor sentiment in China during the year was driven by a series of policy surprises from Beijing.
The key question is whether these policy-induced market actions and economic rebalancing will continue in 2018. Our answer is yes, predicated on two assumptions:
● First, the Chinese leadership understands the flaws in the current economic model and is determined to shift its growth focus from quantity to quality.
The 19th Communist Party Congress has empowered President Xi to make tougher decisions. With a clear mandate to reform and enhanced ability to drive policy designs, we think stars are aligned for Xi to press ahead with more difficult reforms in the coming years.
● Second, the cyclical economic backdrop should remain conducive for reforms in 2018.
A key reason why Beijing has moved so boldly on reforms this year is because of the cyclical revival in the Chinese economy. This positive macro backdrop has created, what Central Bank Governor Zhou Xiaochuan has referred to as, a “critical window of opportunity” for the government to undertake reforms.