The Economic Slow Up in China

China which is the world’s second-biggest economy, is forecast to grow at its slowest rate in 30 years the country has suffered from the slow up in global trade which has seen China’s export-led economy hit hard and of course, the zero tolerance to COVID have hit business output and consumer sentiment:  

China’s COVID Policy

“Support and acceptance – seen in the early days of China’s attempts to control the spread of Covid-19 – have given way to mounting fear, confusion, and a sense of hopelessness among many citizens But a rapid reopening and shift away from the stringent policy threatens to put China’s medical system at high risk of being overwhelmed by mass infections and death.” (SCMP)

Even with restrictions loosening, local governments are still under pressure to conduct mass testing and enforce quarantines if judged appropriate. Many of these cities are already starting to run out of funds. The market sees the re-opening fully by March next year but there is a lot of uncertainty going forward but the damage to China’s economy has been huge which we can see below in terms of exports shrinking due in part to COVID restrictions but also a slow up in global demand.

China Exports

Exports from China edged 0.3% lower yoy to USD 298.37 billion in October 2022, missing market consensus of a 4.3% growth. This was the first decline in shipments since May 2020, 

China Economic Growth and Consumer Sentiment

Leading economic indicators are falling hard and taking consumer confidence down with them as we can see on the charts below.

The Property Crisis

Approximately 70% of household wealth in China is stored in property and China has Real Estate worth around $60 Trillion which is a whopping 30% of China's GDP! The problem is after years of excess the property market is collapsing and it will take China’s GDP down with it.

The Impact of the Slow Up in China

“When the Chinese economy shrinks 1%, the global economy shrinks about half a percent, but then there are major countries that are major trading partners and suppliers to China — countries like Indonesia or Chile, [and] usually they're supplying raw materials," Chamorro said. "When China shrinks by 1%, they shrink almost a full percentage point." (Dane Chamorro, head of global risks and intelligence at Control Risks.)

In terms of other currencies that are correlated to China the AUD, NZD, ZAR, and SGD are impacted heavily by the slow up in Chinese growth.

The recent rally on the re opening of China and also the markets taking a dovish view of the Fed going forward has seen USD/CNH move down to support but we now expect the correction to end...

Technical Analysis

In terms of the key levels of support and resistance as we see them they are on the chart below – we are looking for the correction in the USD to end and a move to the upside to unfold.