China, Still a Concern in 2022: Morning Brief – News Couple
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China, Still a Concern in 2022: Morning Brief


This article first appeared in the Morning Brief. Get your morning feed sent straight to your inbox every Monday through Friday by 6:30 a.m. ET. Participate

Friday 17 December 2021

As usual, we can’t forget China

The world’s largest economy – as with its attendant crises, policy shifts and political intrigue – is a constant focus for investors. Therefore, it is sometimes easy to lose sight of what is happening on the second largest site.

The ongoing turmoil in Evergrande, which bounced across the markets a few months ago and is now being sued by creditors with more than $13 billion, is a stark reminder that while China hasn’t fully collapsed, it’s not an island of stability either.

In fact, Deloitte’s fourth-quarter CFO survey, released Thursday, found finance chiefs are pessimistic about what 2022 holds for the global economy — and China is of particular concern after a sudden recession in 2021.

The company’s data found that 45% see North America better, compared to 54% in the third quarter. Meanwhile, only 27% think China will be better, down from 55% last quarter. Currently, Deloitte found that “29% of CFOs view current conditions as good or very good, which is a significant decrease from 52%” in the third quarter.

So what does it give?

Evergrande’s problems are certainly one element, but Beijing’s increasingly hostile relationship with the United States – and the raging COVID-19 pandemic – are arguably bigger factors. In this week’s research, Goldman Sachs cited the potential for border restrictions stemming from the Omicron variant as a growth concern in the Asia Pacific region.

While the zero-COVID shutdown strategies in China, Hong Kong and Taiwan are not a base case for the company, it is a potential wild card, “especially if Omicron demonstrates sufficient similarity to existing variables in terms of health consequences.”

According to Goldman, “Envelope back calculations suggest that a return to the constraints half as severe as they were during peak delta could cut 1-3 [percentage points] of first-quarter gross domestic product in most economies in the region.

With the Fed’s hiking campaign spotlighting markets as they try to offset losses from inflation, Pacific economies are in a more mature phase of their expansion.

“Many Asian economies that were the first to recover in 2020 are now more advanced in their cycles versus other parts of the world,” Henry McPhee, global macroeconomics chief and chief information officer at KKR, wrote recently.

“Remember, for example, that China was the first to recover after the epidemic, and as a result, it has already begun to tighten monetary policy in 2020,” he added.

Recently, Beijing moved to allay concerns about the economy, alleviating investor fears by lowering reserve requirement ratios for banks. However, the Eurasia group noted that Evergrande is raising concerns about “systemic risks” and the possibility of long-term disruptions.

“While policy makers intensify their efforts to reduce risks to growth from stringent measures in the real estate sector by marginally easing restrictions on financing, the scope of measures identified so far is unlikely to prevent further defaults or stem the continued decline in real estate and construction sales. “This will continue to weigh on activity and financial conditions in the coming months,” Eurasia analysts wrote this week.

DBRS Morningstar recently stated that concerns about the country’s real estate sector have been “enoughly balanced by economic and policy barriers,” but other factors may still lead to the downturn. It all highlights how dependent global growth is on China, and how the bursting of the property bubble could extend to the region and the West.

“The longer-term question is: Is China moving from this rapid growth model to a more mature model with less influence, less reliance on cheap labor, etc.?” Kathy Jones of Charles Schwab told Yahoo Finance last September. “This could have a long-term ripple effect in terms of growth in the global economy.”

by Javier E David, editor at Yahoo Finance. follow him in Tweet embed

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