Will China Rebound in 2023?
The Chinese stock market is experiencing a rebound after a long period of underperformance. Now, investors wonder whether this is a just flash in the pan or a real upturn. To talk about this, I'm joined today by Managing Director Howard Wang. He is country specialist for Greater China Equities at J.P. Morgan Asset Management.To get more China finance news 2023, you can visit shine news official website.
So, Howard, China, the world's second biggest economy, is forecast to grow at a slowest pace in about three decades. What is your outlook for 2023? Do you think the Chinese authorities will be able to solve some of the country's main problems – the local government debt burden is becoming unsustainable, for example? And if so, how?
Howard Wang: Sure. I think when we look at China and when you think about the macroeconomic problems, the main conclusion that we came to is that a lot of this was self-inflicted, because you had a real estate crackdown, you had a technology regulatory reset; and of course, you had the grand looming issue of COVID zero. Because all of these problems were self-inflicted or self-created, you can also unwind them and that's exactly what we're seeing right now, which is that post the party Congress, the Communist Party is moving very, very quickly right now to actually unwind all of these policies which have created a tremendous overhang in terms of investor perception of China and in terms of the GDP growth rate. And just specifically, for instance, on the local government debt, which you mentioned, the local government debt issue is really a function of the finances at the local government level, which are disproportionately contributed to by land sales for the real estate market.
So, to the extent that the government is now moving to a supportive stance of the real estate market, we don't expect this to be an overhang that much longer. In other words, the finances can heal themselves quite quickly if the real estate market can heal itself quickly. And a lot of this is eminently under the control of the government in terms of its policy stance and in terms of its adherence to COVID zero, which again, it's rapidly unwinding right now, which is very encouraging for markets.
Baselli: Right. And as you just mentioned, the zero COVID policy has been a main issue in China. The Chinese cities are now easing restrictions following unusual nationwide protests. How do you assess today political risk in China? For instance, could the domestic political instability and labor activism reshape how foreign companies operate in China, in your view?
Wang: Yeah. I think one of the stories about protests which probably doesn't get enough publicity in the West, is that protests in China are actually quite common, but usually they're about local issues, right? People protesting a factory polluting near their city, et cetera, et cetera. These are smaller, contained protests. And what was unusual about the COVID zero protests was it happened to be nationwide even though not that many people participated. So, in other words, if you roll forward, we already have a bit of a protest culture. I think the important thing from a protest standpoint though is you don't challenge the legitimacy of the Communist Party. But if you're, for instance, protesting about the way a local regulator interprets central government policy, that tends to actually be okay. And I think that's exactly what happened in the case of COVID zero that people were frustrated not just because of the policy, but because the central government already promulgated a loosening of the policy, but local government officials were not following it, and they were still adhering very strictly to something that was A – not really that workable practically, as we know, and then B – something that actually went in opposition to what the central government said was the direction of the country.