China: Downside risks for economy and market impact – Danske Bank

The analysis team at Danske Bank points out that since January, they have highlighted that a China slowdown was brewing in 2017 and we are now seeing increasing evidence of this taking place: PMI decreased sharply in April, commodity prices for oil and metals have lost momentum and the Chinese stock market has fallen over the past month to the lowest level in four months.

Key Quotes

“Chinese tightening measures to reign in soaring house prices are set to slow growth in 2017. A ‘normalisation’ of infrastructure investments after the big boost in 2016 is also set to drive lower activity this year.”

“While we have been looking for the slowdown to be moderate, an increase in financial stress lately poses a clear downside risk to China’s growth this year. In China Daily on 5 May, an editorial started out ‘China is in the midst of what proponents are heralding as its harshest crackdown on financial risks in history: a campaign that is by no means a fleeting gesture’. China Daily is state media and tends to represent the views of the leadership. While tackling financial risks in China is important, there is a clear danger that this is taking place when China was already set to slow down and that it is exacerbating the downturn. It comes on top of the risk of protective trade measures from US President Donald Trump in H2, once his trade investigation and steel probe are finished around mid-year. This could hurt Chinese exports.”