Weekly Buzz: Waking up the Chinese economy

23 June 2023

🐉 China’s central bank is making moves

Last week, amid concerns about the strength of the economy's recovery, the People’s Bank of China (the country’s central bank) lowered key lending rates for both short and medium-term borrowers. (We’ll break down lending rates further in our Jargon Buster section below.) Signs from China’s top leaders also signal more monetary policy to come. 

Where is the Chinese recovery?

After relaxing its strict COVID-19 restrictions, many expected the Chinese economy to come roaring back to life – but it’s still looking to be in poor health (which was one of our concerns). This is reflected in the so-far anaemic performance of the Hang Seng Index, which includes many of the biggest mainland Chinese companies.

A slew of recent economic data have also pointed towards a more feeble recovery for China. Exports fell by 7.5% year-on-year in May, reflecting weak global demand. Retail sales, meanwhile, showed the recovery in consumption losing momentum. Accordingly, major financial institutions have cut their 2023 GDP forecasts for the country. Now we’re seeing why the Chinese central bank is making its policy moves – think of it as a shot of caffeine for a drowsy economy.

What’s the bigger picture?

This policy easing is likely just a warm-up; more stimulus from the Chinese central bank may perk up its economy further. Regardless, while China’s recovery may still be on-going, it’s prudent to take a broader view of things, rather than focus on a single country. 

This highlights the importance of diversification. Being exposed to different regions shields you from individual weaknesses, while allowing participation in broader global growth. Our General Investing portfolios are diversified across geographies and sectors.

This article was written in collaboration with Finimize.

🎓Jargon buster: Lending rates

A lending rate is simply the interest rate charged on a loan – it’s what you pay when you borrow money from a bank. When a central bank adjusts its benchmark interest rate(s), retail banks follow suit. This sends ripples throughout the economy.

Increasing interest rates means less cash in the system, and vice versa. It’s a key lever used to affect the amount of money circulating in the economy, and thus how much people borrow, spend, and invest.

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