China is finding a cyclical floor amid a structural downturn
The past few months have been especially challenging for China, but the problems that are apparently not new. Our diagnosis is that what ails the economy is fundamentally the natural (but lagged) consequences of a housing correction that began in early 2020. While much of China’s current slowdown is structural in nature, it is happening too quickly for authorities’ comfort.
What you will learn:
- The quickly fading cyclical drivers of reopening are exposing the biggest structural issue facing the country – its longstanding reliance on property.
- The messy feedback loop that has now emerged between housing activity, land sales-reliant government finances, household confidence, and persistent disinflationary pressures is also raising the bar for policy to be effective.
- We should see some support to investments in the near term from recent stimulus, pushing us to the official growth target for the year. Further out, the economy appears firmly on a structural downtrend.
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