Top themes for the Chinese economy in H2

We recently received many questions on China’s growth trajectory given the recent twists and turns in onshore activity and policy signals. The key themes that were top of mind in our conversations are the outlook for China and policymakers’ likely stimulus response, the global outlook including risks from elevated US-China geopolitical tensions, and emerging growth drivers within the new technology and energy spheres.

What you will learn:

• China’s weak demand follow-through in Q2 can be attributed to its relatively contained demand-side stimulus during Covid, years of regulatory tightening, and an ongoing housing correction. In response, authorities are shying away from cookie-cutter big stimulus and opting for prudent, targeted policy easing – a positive development in our view. An improving in underlying demand conditions could also stem disinflationary pressures. We expect China’s CPI / PPI to come in at 0.5% / -3.5% this year.
• The backdrop for China’s external demand could get worse, as the global pass-through from tighter monetary policy and financial conditions to activity and inflation becomes more complete. So, we expect Chinese goods exports in volume-level terms to only pick up in Q1 next year.
• US-China geopolitical tensions are now a top-cited risk among market participants, with recent advanced semiconductor technology bans as concrete signs of floundering relations between the two. As campaigning for 2024 begins in earnest in the US and Taiwan, the risk is that US foreign policy could turn more hawkish on China.