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Article15 Apr 2024

China: Supply Side Effects

Asia Pacific Strategy

Chinese authorities finally turned to lift demand and investor returns. Demand stimulus is effectively quantitative easing for property. The significance isn’t whether the amount of funding is enough, but rather the government is determined to stop expectations for price decline and restore household demand.

3 Things to Know

  • China’s recent data improvements came from policies to boost select industries, while other structural problems remain unresolved. The inflation scare in the US also reduced the odds of easier external conditions.
  • President Xi is focusing economic policy on “new productive forces” and “common prosperity.” These are likely to create side effects including, overcapacity, deflation, export dependency, trade tensions, as well as pressure on currency and asset prices.
  • Investors should consider hedging CNY depreciation risk, while volatility remains historically low. Equity investors are likely to focus more on immediate cash returns from dividends rather than the promise of future growth.

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