Page 48 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
from China to other countries more attractive and could their 2018 high by October of that year. The renminbi
help boost trade and commercial opportunities. Another has weakened and is on its way to breaking 7 against
supportive development for the economy is that interest the American dollar, the weakest in a decade. The
rates for bank loans are in the process of dropping markets’ malady reflects an economic weakness. Like
materially – due to the easing of systemic liquidity – the currency, China’s GDP growth is the lowest since
which will continue for months to come. Finally, China the 2008 financial crisis. Auto sales were down year-
has plenty of room for fiscal stimulus. The issuance of over-year, which last occurred in 2015. Infrastructure
municipal special bonds, most of which are earmarked fixed asset investment, the driver of the post-financial
to fund infrastructure construction, has started to rise crisis stimulus was also down year-over-year. The factors
and will continue to do so during next year. This and driving the economy and markets are not the trade wars,
similar developments should give further comfort to but domestic policy and economic cycle. The Chinese
those invested in China. Lloyds Private Bank argues government’s policy focus has been on financial stability.
that it is not a “trade war” in the real sense and the That, in practice, means stabilizing, and then potentially
current situation can be better described as a “dispute”. reducing, the debt- to-GDP ratio. Their confidence and
It also suggests it is likely to have minimal influence on commitment to the policy is demonstrated in their focus
the global economy. Chinese exports have been solid on consumption while accepting declining infrastructure
despite ongoing trade tension. In the background, investment. It is also evident in the contraction in
while the world has been concentrating on the dispute shadow banking assets. Total debt to GDP is stable
with the US-China, relations with the EU have improved at 262 percent. Heavily leveraged conglomerates are
significantly, which could also spell bright prospects for selling assets. The problem is that a cyclical economic
businesses based in the country. There are, however, deceleration, contracting shadow banking assets and
varying reports in the media about how bleak the the unwinding of asset-heavy groups are the perfect
economic future potentially is, and many commentators ingredients for a bear market. Add to this premium
are predicting a global recession in 2019. Investor earnings-per-share growth in US equities and higher US
concerns could combine to knock market confidence, interest rates drawing capital out of emerging markets
eroding growth. This could mean a potential recession in into US assets. The renminbi’s decline can also be
the next couple of years. However, Lloyds Private Bank’s explained by what is happening in the US. As US interest
analysis does not predict a global recession in 2019. In rates converged with China’s, the renminbi has declined
monitoring indicators such as the difference between versus the dollar. It is interest differentials rather than
long-term and short-term interest rates worldwide, crude the current trade frictions that explain the currency’s
oil and metal price trends and the premium for bearing decline. If China was trying to artificially push down its
corporate credit risk, Lloyds Private Bank assesses the currency—as many of its US critics claim—exchange
chances of a global recession in 2019 as being one in reserves would have increased because Beijing would
four. Markus Stadlmann, Chief Investment Officer at have to buy dollars and sell renminbi. Instead, they
Lloyds Private Bank, says: “The brouhaha over a US-China have fallen 2 percent as of this writing. That doesn’t
‘trade war’ has certainly dented investors’ confidence. mean that investors should despair or desert China.
However, our analysis suggests that this will have Today’s markets are reflecting the cyclical slowdown
minimal influence on the global economy.” Stadlmann while giving little credit to the shift to more sustainable
sees China as a good opportunity for investors in 2019. growth. The world’s second largest economy is growing
“Our view is that growth dynamics in several large at 6 percent with stable leverage and a reduction in risk
economies will continue to lift corporate profits. This to the financial system. The consumer is the engine of
seems like a safe assumption in the Euro Area and Japan, growth accounting for circa 70 percent of the 6.3 percent
as well as in China. Warnings of recession abound. Our consensus 2019 GDP growth forecast. These forecasts do
analysis suggests a global recession isn’t likely and include a drag from trade due to current US tariffs but
equity markets are ready for another step up” (eiadmin). do not appear to give credit for recent Chinese policy.
While continuing to push through structural reforms, the
Bear Market? government’s economic policy is shifting to a more pro-
growth stance, with a bias on promoting consumption.
Barron’s claimed China is in another bear market. Tax policy will boost after-tax income in 2019 thanks to
The MSCI China, the index for international investors, increased allowances and now proposed deductions
and the onshore A-share market were both 30 below on major household expenditures such as education,
48
from China to other countries more attractive and could their 2018 high by October of that year. The renminbi
help boost trade and commercial opportunities. Another has weakened and is on its way to breaking 7 against
supportive development for the economy is that interest the American dollar, the weakest in a decade. The
rates for bank loans are in the process of dropping markets’ malady reflects an economic weakness. Like
materially – due to the easing of systemic liquidity – the currency, China’s GDP growth is the lowest since
which will continue for months to come. Finally, China the 2008 financial crisis. Auto sales were down year-
has plenty of room for fiscal stimulus. The issuance of over-year, which last occurred in 2015. Infrastructure
municipal special bonds, most of which are earmarked fixed asset investment, the driver of the post-financial
to fund infrastructure construction, has started to rise crisis stimulus was also down year-over-year. The factors
and will continue to do so during next year. This and driving the economy and markets are not the trade wars,
similar developments should give further comfort to but domestic policy and economic cycle. The Chinese
those invested in China. Lloyds Private Bank argues government’s policy focus has been on financial stability.
that it is not a “trade war” in the real sense and the That, in practice, means stabilizing, and then potentially
current situation can be better described as a “dispute”. reducing, the debt- to-GDP ratio. Their confidence and
It also suggests it is likely to have minimal influence on commitment to the policy is demonstrated in their focus
the global economy. Chinese exports have been solid on consumption while accepting declining infrastructure
despite ongoing trade tension. In the background, investment. It is also evident in the contraction in
while the world has been concentrating on the dispute shadow banking assets. Total debt to GDP is stable
with the US-China, relations with the EU have improved at 262 percent. Heavily leveraged conglomerates are
significantly, which could also spell bright prospects for selling assets. The problem is that a cyclical economic
businesses based in the country. There are, however, deceleration, contracting shadow banking assets and
varying reports in the media about how bleak the the unwinding of asset-heavy groups are the perfect
economic future potentially is, and many commentators ingredients for a bear market. Add to this premium
are predicting a global recession in 2019. Investor earnings-per-share growth in US equities and higher US
concerns could combine to knock market confidence, interest rates drawing capital out of emerging markets
eroding growth. This could mean a potential recession in into US assets. The renminbi’s decline can also be
the next couple of years. However, Lloyds Private Bank’s explained by what is happening in the US. As US interest
analysis does not predict a global recession in 2019. In rates converged with China’s, the renminbi has declined
monitoring indicators such as the difference between versus the dollar. It is interest differentials rather than
long-term and short-term interest rates worldwide, crude the current trade frictions that explain the currency’s
oil and metal price trends and the premium for bearing decline. If China was trying to artificially push down its
corporate credit risk, Lloyds Private Bank assesses the currency—as many of its US critics claim—exchange
chances of a global recession in 2019 as being one in reserves would have increased because Beijing would
four. Markus Stadlmann, Chief Investment Officer at have to buy dollars and sell renminbi. Instead, they
Lloyds Private Bank, says: “The brouhaha over a US-China have fallen 2 percent as of this writing. That doesn’t
‘trade war’ has certainly dented investors’ confidence. mean that investors should despair or desert China.
However, our analysis suggests that this will have Today’s markets are reflecting the cyclical slowdown
minimal influence on the global economy.” Stadlmann while giving little credit to the shift to more sustainable
sees China as a good opportunity for investors in 2019. growth. The world’s second largest economy is growing
“Our view is that growth dynamics in several large at 6 percent with stable leverage and a reduction in risk
economies will continue to lift corporate profits. This to the financial system. The consumer is the engine of
seems like a safe assumption in the Euro Area and Japan, growth accounting for circa 70 percent of the 6.3 percent
as well as in China. Warnings of recession abound. Our consensus 2019 GDP growth forecast. These forecasts do
analysis suggests a global recession isn’t likely and include a drag from trade due to current US tariffs but
equity markets are ready for another step up” (eiadmin). do not appear to give credit for recent Chinese policy.
While continuing to push through structural reforms, the
Bear Market? government’s economic policy is shifting to a more pro-
growth stance, with a bias on promoting consumption.
Barron’s claimed China is in another bear market. Tax policy will boost after-tax income in 2019 thanks to
The MSCI China, the index for international investors, increased allowances and now proposed deductions
and the onshore A-share market were both 30 below on major household expenditures such as education,
48
