{"id":64489,"date":"2023-09-23T06:01:40","date_gmt":"2023-09-23T10:01:40","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/chinas-growth-is-slowing-what-does-it-mean\/"},"modified":"2023-09-23T06:01:46","modified_gmt":"2023-09-23T10:01:46","slug":"chinas-growth-is-slowing-what-does-it-mean","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=64489","title":{"rendered":"China’s Growth Is Slowing: What Does It Mean?"},"content":{"rendered":"
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<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

By Eric Winograd<\/em><\/p>\n

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China\u2019s growth has slowed, but the context is important – an intentional transition to a more balanced economy that relies less on investment and exports.<\/p>\n<\/blockquote>\n

The economic slowdown is understandably causing concern among investors. However, while slower growth in China will impact the global economy and financial markets, we think the short-term pain is necessary to avoid bigger problems down the road. China\u2019s economy is in the early stages of a long-term transition away from an export-driven, investment-led model toward a more balanced one with more domestic consumption.<\/span><\/p>\n

During these large transitions, slowing growth is almost inevitable and – from a long-term perspective – desirable.<\/p>\n

A Much Bigger Economy Today\u2026 and One in Transition<\/strong><\/h2>\n

Part of the growth downshift is simple math. China\u2019s economy has roughly tripled in size since the Global Financial Crisis (Display<\/em>), making it much harder to sustain high growth rates. In fact, trying to boost growth could lead to excessive leverage and, in the case of China, overreliance on sectors with high economic multipliers, such as housing. That would only intensify existing imbalances in China\u2019s system, so we believe that slower but more sustainable growth is a healthier medium-term path.<\/span><\/p>\n

China\u2019s Economy Has Been on a Rapid Growth Trajectory<\/strong><\/p>\n

Indexed Real Gross Domestic Product (2010 = 100)<\/strong><\/p>\n

\n

\"China\u2019s<\/span> <\/picture>
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Past performance does not guarantee future results. As of August 31, 2023; 2023 is a full-year estimate (Source: International Monetary Fund and AllianceBernstein (AB))<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The other main driver of slower growth is the transition away from a heavier reliance on physical investment (Display<\/em>) and exports toward a more balanced economic framework. Because so many resources have been devoted to these industries, they have excess capacity today. Trapped capital translates into lower prices as spare capacity is absorbed, and it results in slower growth as wasted, or wasting, resources are eliminated or redeployed.<\/p>\n

China Is Transitioning Away from Heavy Reliance on Investment<\/strong><\/p>\n

Fixed Asset Investment, Year-over-Year Change (Percent)<\/strong><\/p>\n

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\"China<\/span> <\/picture>
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Past performance does not guarantee future results. As of August 31, 2023 (Source: Refinitiv Datastream and AB)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Meanwhile, sectors with more positive medium-term outlooks continue to thrive, including consumer-facing staples, such as travel and restaurants. Solar and wind power projects are also humming, as are electric vehicle production and other high-tech and green products. It will take time for these industries to replace lost activity in real estate and heavy investment, which is why overall growth is slowing.<\/p>\n

A Shift in Global Growth Dynamics<\/strong><\/h2>\n

How should markets and the rest of the world process China\u2019s growth outlook?<\/p>\n

We think it\u2019s important to avoid focusing too much on the government\u2019s growth target – roughly 5% this year. Even if the economy grows at that pace, it won\u2019t feel like \u201cgood\u201d growth to those outside China. The country\u2019s best-performing industries won\u2019t likely fuel expansion abroad as much as they have before. It takes massive commodity imports to build roads and bridges; selling movie tickets and restaurant meals doesn\u2019t.<\/p>\n

All this means that China\u2019s economy won\u2019t be as big an engine of global growth as it\u2019s been in the past. For markets, this evolution may seem disorienting – and is understandably causing jitters among many investors. Slower growth in the world\u2019s second most important economy likely means lower overall global growth, even more so because China\u2019s growth is becoming more domestically focused.<\/p>\n

Expect Targeted, Gradual Stimulus<\/strong><\/h2>\n

Much of the anxiety focuses on risks from the transition. Highly levered Chinese firms, particularly in property sectors, will likely feel stress, and policymakers won\u2019t be inclined to deliver large-scale support, because it would exacerbate imbalances and delay the transition. Property-developer defaults could become severe enough to imperil the banking sector or local government finances – but that\u2019s not our base case. The transmission mechanism from China\u2019s financial system to the world is limited in direct terms, though turmoil in China could rattle sentiment elsewhere.<\/p>\n

To sum things up, we share the view that China\u2019s economy is slowing, and that slower growth will likely last as the economy transitions. There are also financial-market risks associated with that slowdown. But in our view, the \u201ccure\u201d to that problem – piling more debt and leverage onto the economy and property sector – would be worse than the ailment.<\/p>\n

We think China\u2019s policymakers feel the same way, so we expect targeted, gradual stimulus to manage the slowdown, not a \u201cbig bang\u201d stimulus to push growth into a faster trajectory.<\/p>\n

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to change over time. <\/strong><\/p>\n

Original Post<\/em><\/p>\n

Editor’s Note:<\/strong> The summary bullets for this article were chosen by Seeking Alpha editors.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Eric Winograd China\u2019s growth has slowed, but the context is important – an intentional transition to a more balanced economy that relies less on investment and exports. The economic slowdown is understandably causing concern among investors. However, while slower growth in China will impact the global economy and financial markets, we think the short-term […]<\/p>\n","protected":false},"author":1,"featured_media":64490,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-64489","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nChina's Growth Is Slowing: What Does It Mean? | iFintechWorld<\/title>\n<meta name=\"description\" content=\"By Eric Winograd China\u2019s growth has slowed, but the context is important - an intentional transition to a more balanced economy that relies less on\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=64489\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"China's Growth Is Slowing: What Does It Mean? 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