• MSCI China Index loses double digits
• Recently good economic data from China
• Numerous conflicts between the great powers USA and China
China’s economy grew by 4.5 percent in the first quarter of 2023 compared to the same period of the previous year – the fastest pace in a year (Q1 2022: 4.8 percent). Market observers had expected a smaller increase. Among other things, retail sales developed positively with an increase of 5.8 percent. The world’s second-largest economy is on course for recovery after growing by just three percent last year, weighed down by several lockdowns, forced quarantines and supply chain disruptions.
According to Goldman Sachs experts, growth of 4.5 percent in the first quarter supports the investment bank’s full-year forecast that the Chinese economy is expected to grow by 6 percent in 2023. According to Beijing’s specifications for the current year, China’s economy is expected to grow by “around five percent”.
But from the point of view of the central bank, “the foundations of the recovery are not yet solid”, which is why there is speculation about possible economic measures. The central bank said that private consumption should be promoted and sufficient liquidity should be secured. Equity investors have also lost their confidence despite the positive economic data. The MSCI China Index collapsed by 10.34 percent in the past three months (as of May 5, 2023).
US companies in China increasingly pessimistic
Foreign investors in particular are becoming more cautious. This is reflected, for example, in a survey by the US Chamber of Commerce in China, which showed in April that 87 percent of those surveyed about US companies operating in the People’s Republic fear a further deterioration in Sino-American relations. “Lack of confidence in the bilateral relationship has increased concerns about American investment and overall risk exposure,” the US Chamber of Commerce said in its white paper. “The government-led emphasis on self-reliance creates additional uncertainties for foreign companies.”
Political Ice Age
There are plenty of reasons for the growing tensions between China and the United States: points of contention include China’s backing for Russia’s attack on Ukraine, its claims in the South China Sea, US export controls for high-tech products and those already imposed by the ex-president donald trump initiated a trade war with mutual punitive tariffs. The government in Beijing accuses the USA of hindering the country’s rise and provoking a new Cold War.
Taiwan conflict
The increasing tensions in connection with the Taiwan question have recently received a great deal of international attention. China regards the democratic island republic as an insurgent province and thus as part of the People’s Republic. US-backed Taiwan, on the other hand, has had an independent government for more than seven decades.
Beijing has never ruled out reunification by force. Corresponding concerns have recently been fueled not only by the Russian invasion of Ukraine but also by China’s most recent military exercises. The Chinese military had not only trained a blockade of the island, but also practiced precision attacks.
Lots of little conflicts
In addition, there have recently been a number of smaller confrontations between the USA and the Middle Kingdom. In mid-April, the US federal police FBI arrested two suspected agents who are accused of operating an illegal “police station” in New York on behalf of China.
A Chinese observation balloon, which the United States shot down over the Atlantic in early February, also received a great deal of public attention. According to US media reports, he is said to have collected information about several American military locations. As expected, Beijing rejected this.
The dispute over TikTok has been smoldering for years. Washington fears that the popular short video app could be used as a gateway for Chinese espionage.
Markets pin their hopes on Politburo
However, market participants are hoping for positive impetus from the forthcoming April meeting of the Politburo. As explained by Citigroup, according to CNBC, this meeting could be an opportunity for policymakers to instill more confidence in the private sector. “This year could also be an opportunity for the government to find a holistic and institutional solution to local government debt. As the economy stabilizes, structural reforms could be the next issue to keep an eye on,” Citi said -Economists quoted.
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