Chinese economy: Chinese stimulus a short-term solution, not a long-term fix: David Madden

“Property booms and busts have been the rise and the downfall of many western economies and so there is no reason to believe it cannot happen to them as well. So, it is more of a short-term solution rather than actually a long-term kind of fix to the Chinese economy, ”says David MaddenMarket Analyst, Equiti Capital.

In the past also, we have seen a spurt in bank lending in China and they have used that to fight the slowdown and demand for commodities, for consumer goods. The Chinese have reaped rewards from it in the past. Do you think it would help the Chinese economy and in turn the global economy with what they intended to do right now? What is your sense?
It is very much more of a short-term effect rather than a medium- to long-term solution. The financial markets certainly welcomed the news as they often do regarding stimulus news. But it is one of those cry wolf things that we have seen on so many occasions.

China has played that hand so many times to turn around the economy. Of course, the stock markets have been boosted by the news, partially because it is news out of China. But if you look at how similar stimulus packages have run, after a while, the feel good factor starts to diminish and then it becomes a case of diminishing margin returns.

So it is not going to be the kind of silver polish which shakes out any uncertainty investors have about China. It will lift the markets in the short term but we want to see China actually turn around in terms of the services, manufacturing, retail, sales and the likes particularly, post the recent severe lockdowns in certain regions of China before traders can get a more sustained belief this is actually property going to play up and not just something that will grab a headline and temporarily lift sentiments.

When one talks about the areas in which China would like to concentrate, there is the infrastructure universe. Real estate investment has always been an important indicator of economic health because in China, the property sector plays an outsized role within that economy. How is this likely to play out in your opinion at this point in time?
It is a shrewd move to have some sort of diversification. It is all into the mix but also let us not forget this also will rely on personal debt. If people are going to be coming out spending their hard earned money on electric vehicles and other sorts of items, saying we are going to spend more money into different aspects of the economy and not be overly reliant on real estate and property, which I am sure the Beijing administration knows very well.

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Property booms and busts have been the rise and downfall of many western economies and so there is no reason to believe it cannot happen to them as well. So, it is more of a short-term solution rather than actually a long-term kind of fix to the Chinese economy.

Globally markets have reacted rather positively. Which are the sectors in your opinion that you see showing the most enthusiasm in the near term?
We have seen that major bounce back in industrial metals in the past 12 to 24 hours. This week industrials, high grade copper fell to a 17-month low. Silver fell to its lowest level in over two years. So anything in the mining sector has benefited greatly from this. The timing of this was well played by Beijing because only in the last 24-48 hours we saw major selloff in those commodities and therefore those mining companies that are long connected to the growth of China are most likely to benefit.

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