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Into Overdrive

Posted February 6, 2023 at 4:30 pm

What’s going on?

On Friday the International Monetary Fund (IMF) called on the Chinese government to pull out all the stops, in a bid to get the economy growing at warp speed.

What does this mean?

China’s recovery is set to give the world a much-needed shot in the arm this year, with the IMF predicting the country’s economy will grow 5.2%, after a paltry 3% in 2022. But the organization reckons China’s got even more in the tank, and needs to shake things up a little to really thrive over the long term. That includes leveling the playing field between state-owned and private businesses – a thorny point that’s kept lots of foreign firms out of China – and boosting the nation’s consumption in all kinds of ways: like reducing social security contributions, supporting households that have been worst hit by Covid-19, and lowering interest rates to encourage spending. And as far as the property sector is concerned, the IMF simply wants China to splash the cash: namely by fast-tracking unfinished housing projects and giving struggling developers a helping hand.

Why should I care?

For markets: Castles in the air.

The IMF’s suggestions are all well and good, but whether they actually happen, or even work practically, is another story altogether. Take the notion of cutting interest rates, for example: China’s rates are already well below Western countries, so any additional big cuts could have investors ditching the currency and tanking its value. And with Russia offloading bucketloads of yuan to beef up its own falling revenues, any further hits to the currency wouldn’t be good news for the world’s biggest importer of energy.

Zooming out: Floating on cloud nine.

China’s already made one impressive reform: the country’s simplifying and speeding up the process that lets companies go public, something that should allow smaller firms to tap into investor demand a whole lot more easily. Even Goldman Sachs reckons it’s a savvy move, one that brings China a step closer to standard international practices and could boost interest from global investors.

Originally Posted February 3, 2023 – Into Overdrive

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