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China's economic and trade situation and challenges
!!Wang Yang, Manager of Financial Futures Research Department, Shenyin & Wanguo Futures

2019-09-11 10:18:32
Wang Yang, Manager of Financial Futures Research Department, Shenyin & Wanguo Futures, delivers his report of China's economic and trade situation and challenges 

Mr. Wang reviewed the economy, market and big asset market year to date and expressed his opinion on recent market and future forecast (Steady growth and return to the main line of policy, China¨s economy is bottoming out; geopolitics and counter-globalization continue to emerge). 

Dr. Wang's report was divided into 4 parts: 

1. International geopolitical form and trade friction 
The national economy is expected to slow down, and the German economy faces negative growth; the US economy is slowly declining, looming four major recession signals; the market and political pressure coexist, and the Fed cut interest rates; the Chinese discourse is gradually increasing, and the global geopolitics is shifted from two to three grades; new trategic positioning of China (the logic and steps of the Chinese dream are clearly visible); 

Among them, the global geopolitical aspects are intensifying: the issue of Middle East and Russia, and the Brexit issue. 

In the aspect of trade war: triggering scientific and technological warfare, financial warfare, and diplomatic warfare; the main battlefield of trade warfare is in China, and global manufacturing industry accelerates declining; China and the United States still have substantial differences in the content of the agreement; the impact of trade wars includes three aspects: trade partners change (ASEAN replaces the United States); open to the outside world (special economic zones, regional competition, international competition), secondary industry transfer; foreign exchange manipulator accusation); RMB fundamentals are good, and depreciation pressure has been released (exchange rate depreciation will not continue, 7.2 is a vertex). 

2. China economic cycle and downward pressure 
China's economic long-term kinetic energy switchover in four decades (every nine-cycle): rural urban contract system reform; South Tour Development Zone and state-owned enterprise property rights reform; WTO accession industry chain construction; market-oriented reform; prevention and resolution of major risks, innovation decade economic downturn structural changes during the period: economic transformation, consumption contributed significantly to the economy; financial industry increased too fast, the marginal effect on the real economy weakened; investment growth rate has been lower than consumption growth; the impact of de-leveraging on real estate investment gradually emerges ; 

The internal and external pressures are superimposed, and the economic fluctuations have increased in the past year; the supply is stronger than the demand, which is not conducive to the opening of the inventory cycle; the price factor (structured inflation caused by swine fever); the demand structure (the consumption drags down the economy); 

Dr. Wang believed that China's economy was in downturn in short-term, but it is expected to turn better in two years. In the second half of 2019, the economy will be high at first and then low, and it will still be tortuous. 

3. Supply-side reform and demand-side management 
Supply-side reform and manufacturing upgrades boost industrial transformation; industrial supply side shifts to financial supply-side structural reform; financial supply-side reform reduces costs to help industrial transformation; strengthens counter-cyclical price adjustment, and four major policies (financial tax reduction and fee reduction, moderate monetary tightening, structural policies require momentum from reform, and social policy guarantees). 

4. Major assets and commodity outlook 
Three logics that drive asset prices: friction, economy, and currency; 

Equity: From the disclosed data, the growth rate of the second quarter was general; structurally, the performance of the second quarter was already great; the agriculture, forestry, animal husbandry and fishery, communication computer and finance performed excellently; 

Treasury bonds: risk aversion heats up, bond yields fall mainly; credit bond defaults continue to remain high 

Crude oil: US stocks fell sharply; OPEC production fell; weak balance between supply and demand; 

Commodities: Price expectations are subject to the negative effects of long-term trade frictions, weak global economy, and increased production capacity. The downside of commodities is difficult to break, but it is affected by the Fed¨s interest rate cuts, repeated trade frictions, and steady growth in domestic infrastructure. Some commodity prices may be repeated and more volatile, and the overall commodity will present a bear market pattern. 
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