Those influences are yet to be fully felt by China – exports to the US rose by a solid 9.4 per cent in April and its trade surplus with the US grew 14.7 per cent compared with a year earlier – but will add to the challenges China’s economy faces and in turn will exacerbate the threat to global growth.
China’s Premier, Li Keqiang, warned at the weekend of the “complicated and grave” situation confronting employment in China and promised to increase the efforts to stabilise the job market.
The authorities have foreshadowed more infrastructure spending and other stimulus measures while Xi seems to have paused the efforts to crack down on the big end of the technology sector. Some curbs on leveraged property companies seems to have been eased and the broader assault on private capital seems to have tapered off in an indication of the depth of the authorities’ concerns about the direction of the economy.
It’s a threatening new world for investors unused to an inflationary environment or a central bank that is committed to tightening monetary policy after nearly a decade and a half of ultra-loose and comforting (for investors) policies.
Despite the darkening economic clouds Xi remains committed to zero COVID, even though it is hard to reconcile solid economic growth and a policy that has such a disruptive and negative impact on growth. Earlier this month, while pledging to meet China’s economic targets, he also made it clear he wouldn’t budge from the harsh approach to COVID outbreaks.
China’s export performance triggered another sell-off in global sharemarkets, including China’s, where Shanghai’s CSI300 index has now slumped 21.5 per cent since the start of this year.
In the US the S&P 500 fell another 3.2 per cent and the Nasdaq index 4.3 per cent.
The US market has now clocked up five consecutive weeks of declines – its worst performance in more than a decade – and is now down nearly 17 per cent since the start of the year. The Nasdaq, swollen with technology stocks, has lost about 26.5 per cent of its market capitalisation over the same period.
With yields on Treasury securities soaring (and prices, which have an inverse relationship to yields tanking) there has been nowhere for investors to hide. The US 10-year bond yield has doubled since the start of the year and now trades above 3 per cent.
The primary influence on US markets is the shift in the Fed’s monetary policies – rising interest rates and a withdrawal of liquidity – in response to an inflation rate of 8.5 per cent but the energy shock, the war in Ukraine, the supply chain issues and a rapidly strengthening US dollar are also contributing to acute risk-aversion.
It’s a threatening new world for investors unused to an inflationary environment or a central bank that is committed to tightening monetary policy after nearly a decade and a half of ultra-loose and comforting (for investors) policies.
It’s also a threatening new environment for China’s policymakers after decades of extraordinary growth.
A series of policy decisions have caused a property sector implosion, destabilised its tech sector and produced the COVID-related chaos in logistics even as the external environment threatens the export engine that’s powered its long-term growth.
Wall Street has recorded five-straight weeks of declines.Credit:AP
The trade data also provided some insight into China’s response to the war in Ukraine and the West’s sanctions. China’s monthly imports from Russia were at record levels – 56.6 per cent higher in April than a year earlier. Its exports to Russia (not surprisingly, given the state of Russia’s economy) fell 25.9 per cent.
There’s no breakdown of that data but the obvious assumption is that China has taken advantage of the impact of the West’s sanctions.
Loading
While Russia’s oil and gas hasn’t been directly sanctioned (yet) the financial sanctions have hit demand for its energy and created an opportunity for China, which is heavily reliant on imported energy, to buy Russian oil and gas at a significant discount to global energy prices. It seems to have taken it.
That’s probably the only solace the authorities can take from their deteriorating trade and economic outlook.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Read More:China rattles markets with zero-COVID economic data
2022-05-10 01:56:00
