China’s stabilising economy a relief for Asia, but US election outcome poses a risk
A range of Chinese economic performance indicators suggest that Asia’s largest economy stabilised in the second quarter, a development seen as a relief for other Asia Pacific economies. While the region may have survived Brexit relatively unscathed, so far at least, other areas of uncertainty remain. And despite China’s strong second quarter, for Asian economies the growth trajectory of the Middle Kingdom remains one of the most significant of these uncertainties.
When analysing China’s economic performance in the first half of this year Qu Hongbin, chief China economist at HSBC, took a bullish tone. “Economic activity in China has stabilised in recent months, mostly on the back of the property market rally and strong infrastructure investments. We forecast 6.7 per cent GDP growth for 2016. So, in our view, worries about a sharp slowdown are overblown,” he wrote in a recent research report.
Looser government monetary policy has contributed to this stabilisation, albeit at the cost of further burdening China’s economy with debt.
“Policy supports have played a significant role in offsetting weakness from structural adjustments, and economic rebalancing continues, with private consumption and services sector leading in performance,” said Aiden Yao, economist emerging Asia at AXA IM, in a report.
However, concerns remain across a range of areas from slowing private sector investment, rising corporate and local government debt, and declining productivity. This means that those countries in emerging Asia for whom selling products, components or raw materials to China makes up a significant proportion of their exports, the direction of the Chinese economy will remain an area of significant concern.
The Fed’s policy tightening, US election, and China concerns are key risks on the horizon
“The direct impact from Brexit is manageable [for emerging Asian economies], and will be offset by policy easing from local and developed markets’ central banks. The Fed’s policy tightening, US election, and China concerns are key risks on the horizon,” said Yao.