Economic growth is normalising, settling into its trend rate
Recent market commentaries on China have focused on a few concerns. One is whether economic growth is slowing more than expected, since that could bring a premature end to the bounceback from the Covid downturn — and that would be bad for the global recovery. Another worry has been whether the Chinese authorities can get the right balance between maintaining a decent growth rate and ensuring financial stability, the fear being that they may prematurely tighten policy and cause a slowdown in the process.
These are indeed pertinent worries, but we are relatively sanguine about these issues. Economic growth appears to be on a good track while Beijing’s policymakers have been quite adept at juggling between potentially conflicting objectives. But there are other trends bubbling under the surface which could end up as nasty surprises. Since China is run as a top-down system, politics is key. Thus, the machinations in advance of the Chinese Communist Party’s next congress in 2022 are a possible source of downward surprises. But there is a second trend which also bears watching: new socioeconomic trends are emerging which are poorly understood and these could produce unexpected economic outcomes, as we argue below.
