China’s bazooka versus Trump’s victory
Laurent Denize, Global Co-CIO, ODDO BHF AM.
“As the world’s second-largest economy, China has much to offer and should be included in any globally diversified portfolio. Short-term complexities do not rule out building positions in Chinese quality stocks with strong potential.”
On November 6, the U.S. election saw a sweeping victory for Trump, implying rising uncertainties for China and the world. On Friday, November 8, 2024, China’s National People’s Congress Standing Committee concluded in Beijing and unveiled a 10-trillion-yuan ($1.4 trillion) stimulus to aid local governments, the boldest one since the pandemic. Is this level of support sufficient?
Trump 2.0 – Implications for China
Trump’s return to the White House signals the potential restart of the U.S.-China trade war. Higher tariffs and more trade restrictions could impact Chinese export-oriented sectors. The yuan may also face depreciation pressure to counter reduced external demand.
However, the effects of this round of tariffs hike might differ from the disruption seen in 2018. First, the U.S. share of China’s exports has dropped from 19% in 2017 to around 14% by the end of 2023, with China actively expanding markets outside the U.S. and relocating production lines to other countries to mitigate tariff impacts. Second, China will more proactively deploy counter-cyclical fiscal and monetary policies to cushion the economic blow. November 8th, 2024, China’s Finance Minister Lan Fo’an promised a “more forceful” fiscal policy for next year, signaling bolder steps may follow Trump’s inauguration in January. Third, Trump’s approach tends to be “transactional.” Thus, the extent of tariff increases could well be the result of negotiations between the two nations.
The November 6 election result is only the first step. The situation will become clearer once the new president assumes office in January 2025 and selects key members for the policy team.
Chinese government is unpacking its bazooka
China’s policy attitudes shifted visibly in late September, shortly after the U.S. Federal Reserve made its first rate cut in years. Since July, economists had been steadily downgrading growth forecasts for the current year. At the end of September, the central bank responded to China’s persistently weak growth with a series of measures. Key interest rates were cut, including those for existing mortgage loans. Extraordinary measures were also taken to stabilize the stock markets.
For example, a “facility” of 800 billion renminbi was set up to lend to corporates and non-bank financial institutions to buy shares. The Politburo meeting, originally set for October, was also advanced unusually to late September, calling for stronger and more effective counter-cyclical measures to boost economic growth and stabilize the real estate market.
