China's Afterparty Equity Outlook 2023

The back drop is challenging

After a 10 year power struggle, President Xi Jinping now has his own self-chosen cabinet. The immediate changes that followed appear to be focused on getting the China growth show back on the road.

- Zero-Covid policies resulted in consumption, investment and net exports plummeting to 30 year lows, along with real GDP.
- The transition from 'any growth' to 'common prosperity based growth' led to heighten regulations that stifled several sectors of the economy, including the (Financial) technology, internet and gambling sectors.
- Tighter regulations also brought the two decade long growth story to an end in the Chinese Property sector - back in July 2021.

A reversal of fortunes was well overdue

Enter 16 measures to support the property market (sponsored by the People's Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC).

Plus a further 20 measures to relax Covid control guidelines, sponsored by China's National Health Commission (NHS).

Plus the diplomatic efforts by President Xi Jingping to manage a geo-political balancing act that keeps China trading globally.

Unwinding the recent past has a high price

With 50% of China's employment (and GDP) driven by services (including tourism), free mobility is key to growth. But the result speaks for itself - no official numbers are being published on Covid infections levels - the images of Chinese hospitals brimming with people tell the story instead.

Both household and corporate debt remains higher than many developed markets. Unwinding this debt will also take time. Whilst households are once again building up buffers, consumer confidence remains low. And for some property developers, time is all they have before insolvency is inevitable.

For now, investors seem to be in wait and see mode, despite both H and A shares trading a decade lows.