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Why is 2017 an extremely important year for China?

2017 is an extremely important year for China. Fears about China’s economy are shaking global markets and capital is leaving the country at an unprecedented price. What are the market risks to be aware of? What is the outlook for the Chinese economy? What was the importance of the “One Belt, One Road strategy” to growth in China? 

Metaphor of market risks - Two Pedals

In order to understand the government at this point in time and what they are trying to achieve in a simplistic way is to think of it as two pedals. One pedal is the stabilisation of growth, and once stabilisation is seen then the foot can go to the second pedal of tightening.

China is one of the only central banks and governments globally tightening balance sheets at this point in time. When you tighten, it can hurt investor sentiment as well as liquidity. It is vital to keep the balance between stabilisation of growth while ensuring that liquidity, credit costs do not blow out. 

Another big question around the world at the moment is the relationship between the United States and China. Three months ago potentially the biggest risk was trade related risk with the US but this risk has significantly decreased since President Trump and President Jinping met in April this year. 

A recent press release has come out from the Chinese to increase beef imports from the US into China, as well as trying to encourage financial services companies to access more Chinese Capital Markets both in terms of bonds and equities. The Chinese government is seeking to develop the bond market in particular and open it up to foreign investors to diversify China’s funding sources, and move risk away from the banking system. “China just agreed that the US will be allowed to sell beef and other major products into China once again. This is REAL news” Trump tweeted.

It is an expectation that future announcements will be made regarding these two economies. 

 

 

What is the outlook for China in 2017??

From a political perspective, in October this year it will be the 19th National Congress of the Communist Party of China in Beijing. The party delegates will elect new leadership of the Communist Party of China.  They will also have discussions around the new five year plan. 

The key areas of the economy that President Jinping and government are going to be focusing on are the stabilisation of growth and the tightening of the balance sheets. At the start of 2017 the message coming out of Beijing is that the stabilisation of growth has been achieved. 

Expectations are that markets will muddle their way through and not to expect any up or downside surprises. In Q1 of 2017 economic activity increased and has slightly declined in Q2. This has provided the government the ability to start tightening policies. 

There is a big strategy around cleaning up China’s problems, very notably debt. This is to ensure that when they are opening their capital markets and their capital accounts that they have companies in an economic backdrop that looks attractive for foreign and domestic investors to invest in. 

 

 

The importance of One Belt, One Road to growth in China

The One Belt, One Road (OBOR) strategy was initially announced in 2013 and appears to be very close to President Jinping’s heart. It is the recreation of the Silk Road, both maritime and rail to connect the two ends or Eurasia, as well as Africa and Oceania. OBOR is a strategy that will ideally result in all excess capacity, such as the build-up of steel over the years, being exported out to the world. 

From a political perspective, it is also a way for the Chinese government to increase their soft power status, so they are not only funding projects within China but also their neighbours such as Pakistan, Malaysia, across Asia, Europe and even as far as Latin America. OBOR provides a global context for China to grow its economic links.  

 

 

 

This document may include general commentary on market activity, sector trends or other broad-based economic or political conditions that should not be taken as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be taken as a recommendation to buy, sell or hold these securities.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.

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This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser.  You should consider these matters before acting on the information.  You should also consider the relevant Product Disclosure Statements (“PDS”) for any Fidelity Australia product mentioned in this document before making any decision about whether to acquire the product. The PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading it from our website at www.fidelity.com.au. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. This document is intended as general information only. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Reference to ($) are in Australian dollars unless stated otherwise. 

© 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

This website is intended to provide general information only and has been prepared without taking into account your objectives, financial situation or needs. You should consider these matters before acting on the information and consider the relevant Product Disclosure Statement for any product named on this website before making an investment decision.

© 2017 FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340.
Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL limited.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 ("Fidelity Australia"). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making an investment decision retail investors should seek advice from their financial adviser. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements ("PDS") for the fund mentioned in this document. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. References to ($) are in Australian dollars unless stated otherwise. © 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, and the Fidelity International logo and F symbol are trademarks of FIL Limited.