China has grown at an astonishing rate for decades, even creating anxiety in some of the developed countries. But the consequences of some policies are finally catching up to them. The growth numbers have ground to a halt.
The first one is the policy of devaluating their own currency to boost exports, making it downright impossible for many companies to compete with them. However, with the recent deflation risk, even though the government ordered the commercial banks to crank up the pressure, it seems that the Yuan might just break through, further decreasing the export value and GDP growth.
Another one is the aggressive stance in international relations, the biggest trading partner of China is the US, however, an onshoring process has already begun, partly due to tensions in policy. President Biden also recently signed an order limiting some investments in China. (you can read more on that in the blog) The Hang Seng stock index plunged by nearly 6% this week, sitting at the edge of a bear market, partly due to international investment falling.
The biggest policy problem of course is a highly authoritarian government, this reduces the confidence of international investments, and events like CEOs and executives disappearing are both politically and economically concerning. For example, even though I think Chinese equities are very underpriced, such factors deter me from investing in the country. This increases the risk premium on the stocks, leaving them underpriced, meaning much-needed capital infusions do not happen.
We will see in the coming years if such policies will decrease growth, but it seems like a possibility to me.
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