Aside from artificial intelligence, China is probably the hottest topic in financial markets right now. And for Australia's resources and energy heavy economy and sharemarket, it’s arguably the more relevant of the two — at least in the immediate sense.
Most of the commentary around China since we launched Capital Brief, including in our own stories, has been on the gloomy side. The post-pandemic bounce many expected hasn’t transpired. The country’s decision to stop publishing youth unemployment figures was not a confidence builder. Two of its biggest property developers are teetering on the brink as a multi-decade real estate boom fades. As the prominent fund manager Phil King from Regal put it this week, in a story by Jack Derwin, “I’ve said for a while that Chinese property is a bigger bubble than Bitcoin”.
China cut the reserve ratio requirements on its banks overnight — a move that theoretically frees up capital for lending. It’s the latest in a long list of measures the government has taken in recent weeks to prop up the economy. And today we got a hint that these measures may in fact be working: China reported stronger than expected retail sales figures and industrial production data. It raises the question of whether the market has become too bearish on the country.
Unlike in the aftermath of the global financial crisis or at the start of the pandemic, China's government has not opened the fiscal bazookas yet. If the worst is really over, it might not have to.
