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I still remember when Malaysians used to make fun about China. “Wah, this thing from China ah? Can use or not oh”, “Later, your baby poisoned eating these things” are probably the most common thing we have heard about China’s products. They are most often associated with cheap and low quality back in the 2000s, and even until today, that has stuck with many people around the world.
However, by the 2010s, China became the second biggest economy in the world, just behind the U.S. It has come a long way. Nowadays, most of the countries in Asia rely on China for most of their exports. No longer is the U.S. or Europe the main customers, but China also has a voracious appetite. In 2022, something peculiar happened. While most of the world were like “Yo, let’s open up. Nothing to worry about Covid”, China was like “Lock it up, guys.” Several lockdown restrictions in April and October 2022, meant that Chinese consumers can’t even go out and buy anything. Factories can only operate at half capacity, and some of the workers even had to sleep on the job … literally.
Economic growth slowed to only 3.0% in 2022, far below the Chinese government target of 5.5% (China has this weird obsession of targeting growth for the economy for some reason, like some weird school system of having 50 students get straight A’s). By the end of 2022, the Hang Seng China Enterprise Index declined by 18.6% compared to the beginning of 2022. That means if you invested about RM100 into the China market, you would have lost about RM18.60.
Going into 2023, should we be worried then? Let’s find out with the 3 points below!
China’s economy is expected to rebound by 5.2% in 2023 from 3.0% in 2022.
Let’s dumb this down a bit. Imagine if you have 100 apples in 2021, and you have 103 apples in 2022, your growth rate would have been 3%. However, is this growth good? That depends. For the last 10 years, you have been growing at about 7% to 8%, meaning that the 3% growth you had in 2022, is kind of weak for you. Next year in 2023 however, that 103 apples you have is expected to grow to 108.4 apples, giving you a growth rate of 5.2%. It is not a bad growth, but it’s still below the 7% to 8% you had previously. This is exactly the situation China is in now. It is good news that its growth have increased to 5.2% but not that great also if China’s historical growth rate have been 7% to 8% in the past 10 years.
I don’t think we need to be worried that much about this for 2023. After all, it is growing, just not as strong and that’s fine. What matters is that the “Let’s lock it up, guys” mindset is shifting towards “Hey, let’s grow, guys” after the government was rocked by several protests in November 2023, which took them by surprise. As long as China continues to stay away from locking everything up mindset, China’s growth is ok and fine for many of us.
Things Between U.S. and China are Getting Worse Though…
China no 1… or U.S. no 1, that’s essentially how things are between the U.S. and China currently. The U.S. always had something against the rise of China as it threatens their number 1 position in the world. It all started with Trump saying “Build the Wall” but we didn’t expect him to mean the Chinese Great Wall in banning import of certain things from China and also increasing taxes on Chinese products. That kind of stance continued under Joe Biden, where he also banned the exports of high-tech products to China to bring back high-tech investments into America. The Chinese Great Wall also turned into the great wall of America, where they are trying to bring investments back into the U.S. and lock them up.
China wants Taiwan back. U.S. said nope. That’s the crux of the conflict between the U.S. and China. And that is expected to worsen in the coming years as China ramps up its spending on the military and public spending in anticipation of a potential war in Taiwan. Not only that, China has also threw its lot into the Russia-Ukraine arena by proposing a peace deal but also siding with Russia. The U.S. and Europe of course is not happy with this. Both countries banned Russian products and instituted some sanctions in Russia, but China is happily buying Russia’s crude oil and natural gases at discounted prices.
The rivalry between the U.S. and China is projected to become worse in the coming years. Let’s not forget that we can use balloons to spy on each other.
The Chinese Stock Market Have Shown Some Improvement But the Global Side is Not Doing Too Well
In January 2023, the HSCEI rose by 10.7%, as investors were quite happy that things were looking up in China, as Chinese leaders gave their pinky promises that no lockdowns will be expected and China will be re-opened. However, things got into quite a pinch when the Federal Reserve said it will raise interest rates with U.S. inflation being still high in February 2023. And then, the second biggest bank failure happened in Silicon Valley Bank in March 2023, where the fear spread to other countries in the world. The HSCEI market is now down by 0.2% as of 27 March 2023 compared to the beginning of the year.
It remains to be seen whether this banking crisis and Fed’s interest rate hikes could throw more daggers at the Chinese stock market. Until then, I am waiting with bated breath that this is not the case. If China doesn’t do well this year, who is going to?