China’s Catch-22 situation for the economy – and how to invest around it

by | Jul 2, 2023 | Financial

A look through China’s economy today reveals a few dilemmas, especially for investors trying to gauge future growth. If the government sticks to a playbook of infrastructure investment to drive growth, debt problems worsen. Boost the faltering real estate market, and the property bubble remains unresolved. Slash interest rates – while the U.S. hikes – and the pressure’s on to prevent outflows to the stronger U.S. dollar. With little room for policymakers to act, and geopolitics hovering, a turn to defensive names in health care and insurance may be in order for investors. That’s what consumers wanted to buy anyway with the money they had, when China ended its Covid measures late last year. As for giving more cash to consumers at scale, official statements over the last two years make it clear top leaders still need convincing. Exports are falling on global weakness, not something China can control. Today’s problem, which China has acknowledged, is a lack of confidence. That could send the economy spiraling down in a vicious cycle. And it could just as easily bounce back in a virtuous cycle. “If the economy does badly, confidence is weak. If confidence is weak, spending is low,” said Michael Pettis, a finance professor at Peking University. If “spending is low, the economy d …

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