Alkthough some might ignore it, the trend towards a global economy that really took hold after the fall of the Soviet Union has benefited emerging markets more than others, China in particular. Then again, with a huge land mass and an enormous – and relatively well-educated population – the Chinese economy should have been far bigger than it was, but was hampered by Mao Zedong’s policies. Today the US is still in pole position in terms of gross domestic product (GDP), but the People’s Republic of China is snapping at its heels.
President Trump’s election slogan, 'make America great again', harks back to a time after the second world war when US might could dictate terms left, right and centre. Many will support his trade row with China, but perhaps he’s picked the wrong foe. In President Xi Jinping he may have an opponent of equal stature and economic strength; a clash of the titans.
Unlike the partisan split at the US Congress, which has hampered governments for years, the Chinese Communist Party works as a cohesive unit, displaying a united front – brooking no dissent. Front and centre, always, is national cohesion, something that may involve tactics considered unsavoury by westerners. It has involved creating millions of jobs, moving people from poor rural areas, building homes and providing enough food. Although Q2 2019 GDP at 6.2 per cent was the lowest since the current series began in 1992, and less than half of peak at 15 per cent, it compares favourably with the US.
This is reflected in the value of the currency, which has appreciated from almost 9 per US dollar in 1994 to 6 in 2014. The managed depreciation since 2018, part of the effort to contain the trade war, took the exchange rate to 7.15, halfway between the two extremes and a manageable level that still leaves room for manoeuvre.
Mainland Chinese stock markets have fared less well, possibly troubled by a tendency to speculation and commercial hype. Using the China Securities Index of top A shares traded in Shanghai and Shenzhen, we see that it kicked off in 2004 at a nominal 1,000, to hit a record high at 5,891 in Q4 2007. The very next year it gave back nearly all of that rally – a typical reaction to a silly bubble. Since 2009 things have been a lot more stable, reflecting the increased maturity of the companies and investors involved. There is a slight tendency to higher prices, probably helped by money supply, which is growing at a healthy but not stupid 8.4 per cent. Consumer price index (CPI) inflation hit 3 per cent last month, fuelled by swine fever and soaring fresh fruit prices.
Benchmark 10-year Chinese sovereign bonds, where the long-term aim is to make them more attractive to international investors, have seen yields hold between 2.5 and 5 per cent since the start of this century; an excellent performance for a relative fledgling. Currently on the way down, the People’s Bank of China is part of team China – which may not be the case at the Federal Reserve.
The construction industry, which had been working at a ferocious pace, slowed down – which is probably not a bad thing. This is reflected in the price of steel rebar futures in Shanghai, where there’s probably more room to the downside. This will also reflect on the demand for steel, which globally is still relatively depressed. No point moaning.
