As we have forecast, the 20th century was the American century – the 21st century will be the Chinese century. The business of China is business; the business of America is war. While America spent countless trillions waging and losing endless wars and enriching its military-industrial complex, China has spent its trillions advancing the nation’s businesses and building its 21st-century infrastructure.
The following overview of the current economic trends further paints the ups and downs of China’s economic future.
CHINA SET TO RIVAL NEW YORK AND LONDON AS FINANCIAL CENTER. China soon will emerge as a financial center equal to New York and London, predicts Raymond Dalio, founder of Bridgewater Associates, the world’s largest hedge fund.
Last year was China’s “defining year” as a global economic power, he said in a December interview with the Financial Times.
Although the country’s financial infrastructure is less developed than the world’s two other major investment hubs, it soon will grow to a scale that challenges New York’s Wall Street and The City in London, Dalio said.
“China already has the world’s second-largest capital markets and I think they will eventually vie for having the world’s financial center,” he noted. “Throughout history, the largest trading countries evolved into having the global financial center and the global reserve currency.”
China’s emergence “just looks like that all over again,” he said.
As the Trends Journal has been reporting, China’s economic recovery has been swift and relatively steady; its economic growth this year will far outpace that of any other country, and it offers higher interest rates and more room for stock prices’ growth than many developed countries.
As a result, foreign investors flooded Chinese markets with more than $140 billion in 2020.
China’s authoritarian government can skew markets with unexpected unilateral actions, Dalio acknowledged, but “nothing’s perfect” and “you’ve got to diversify,” he pointed out. China’s capital markets “are good investments and the world is underinvested there.”
CHINA STOCKS SET RECORD CLOSE. China’s CSI 300 of leading stocks listed on the Shanghai and Shenzhen markets closed 11 January at 5,441 after touching 5,542, its highest mark ever, during the trading day. On 5 January, the index gained 1.9 percent, closing at a then-record 5,368, its highest mark since 2008, and has kept climbing.
Chinese equity markets have gained about 50 percent in value after a brief plunge at the beginning of the pandemic early in 2020.
China’s economic recovery has outpaced that of virtually every other nation and its interest rates are among the highest, convincing investors to put about $150 billion in Chinese stocks and bonds last year.
Individual Chinese investors also have entered the markets, believing that stocks are still a good value and the government will ensure the market’s stability, analysts say.
Also, in-country investors “don’t have another alternative at this time and people’s confidence is bouncing back,” Ronald Wan, CEO of Partners Capital, said to the Financial Times.
The price surge has raised the specter of 2015’s Chinese stock bubble, which was followed by a 40-percent market crash.
However, stocks are more reasonably valued now, observers point out, and far less borrowed money is being invested because the government clamped down on leverage after the 2015 debacle.
Still, the boom could fade during 2021’s second half as vaccines are widely distributed around the world and other nations’ economies recover, offering investors a wider choice of growing returns, Wan pointed out.
“At that point” China’s stock exchanges “may see an adjustment,” he said.
CHINA RISKS FINANCIAL INSTABILITY, IMF WARNS. China must quickly address rising debt and generous financial stimulus measures to avoid financial instability, the International Monetary Fund (IMF) warned in an 8 January report.
Lax treatment of non-performing loans and payment holidays for borrowers “run the risk of increasing moral hazard and undoing recent progress in strengthening bank transparency and governance,” the report said.
Debt loads rose and creditworthiness deteriorated during the pandemic and economic recovery because banks were not vigorous in confronting delinquent borrowers. Small banks came under heightened financial pressures and some local governments saw debt rise as revenues shrank, the IMF noted.
China’s economy will grow 7.9 percent this year, but “it’s crucial to look below the headline number and what we see there is growth that is not yet as balanced as we would like to have,” Helge Berger, head of the IMF’s China mission, said in an 8 January Bloomberg interview.
“Growth is still relying heavily on… traditional public infrastructure investment,” she noted. “What is lagging is consumption.”
The IMF’s report urges China to adjust fiscal policy to stimulate household spending and strengthen social safety nets.
“Establishing a reliable and effective social safety system that sends transfers to low-income households during economic downturns would provide high-impact support to the recovery,” the report stated.
“It also would make growth more resilient by reducing the high household savings rate and reinvigorating economic rebalancing toward private consumption over the medium term.”
Interest rates and the money supply should be flexible to control inflation rates and keep markets robust, the report suggested, adding that financial regulations need to be made stronger.
China has indicated it will attend to the IMF’s suggestions this year but will not shift policies suddenly enough to unsettle the country’s economic recovery.
