Finimize - 🇨🇳 China's giving pep talks

What’s going on here?

China’s giving investors a pep talk, but it’ll have to overcome some serious obstacles to boost their confidence.

What does this mean?

2023 was pegged as China’s comeback year – a chance for the country to shake off the lingering pandemic blues and regain its mojo. But it’s been more of a wobble than a confident strut so far, with consumer spending and the property market still on shaky ground. That’s spilled over into markets too, with the CSI 300 – China’s main stock index – dipping 3% this year. To try and get investors back on side, Chinese regulators are rolling out the red carpet: slashing broker transaction fees, mulling longer trading hours, and giving a thumbs-up to share buybacks too.

Why should I care?

The bigger picture: Shaky foundations.

While these moves might soothe market jitters, they’re really just papering over the cracks. Just take a gander at China’s property sector, which makes up about a quarter of the country’s economy. Nearly half of state-owned property developers are in the red for the first half of the year – stoking worries the housing crisis is spreading from the private sector to companies that have government backing too. And that’s bad news: if state-owned companies can’t finish the projects that private companies dropped, it could further dent homebuyer confidence. That means that all eyes are now on the central bank’s recent hefty interest rate cut, in the hope that it’s the magic elixir the market needs.

Zooming out: Prophets of doom.

China once set its sights on a 5% growth target for 2023, and at the time, that goal seemed almost unambitious. But even that modest aim might be out of reach now, and banks are already dialing back their optimism: Nomura’s betting on 4.6%, Morgan Stanley’s at 4.7%, and JPMorgan’s chimed in with 4.8% – the best of a bad lot.

What’s going on here?

Data out on Friday showed that the bad British weather rained on the retail sector’s parade.

What does this mean?

The UK might be famous for its unpredictable weather, but Mother Nature seemed particularly moody this summer. After all, last month turned out to be more about raincoats than beachwear, ranking as the sixth wettest July on record. And that gloomy backdrop had shoppers rethinking their summer wardrobe updates – triggering a sharp drop in clothing store sales, despite inflation’s slight cooldown.

Food and department stores also felt the pinch, but those cooped-up consumers were good for one thing: online shopping. Thanks to events like Amazon Prime Day, online sales climbed 2.8% from June, hitting their highest proportion of overall sales since February last year. Mind you, though, even that uptick in virtual carts couldn’t offset the overall slide, and retail sales ultimately fell by 1.2% – the first time they’ve missed expectations in four months.

Why should I care?

The bigger picture: On the fence.

Forecasting whether this is a rain-induced blip or the start of a trend is like predicting British weather: tricky. On the one hand, elevated interest rates and waning consumer confidence suggest that shoppers might keep pulling back. But on the other hand, wage growth is set to keep outpacing inflation in the coming months – so consumers might actually have some extra cash to splash before long.

Zooming out: Baby-bust blues.

The UK’s baby-making hit a 20-year low last year – and if that continues, a shrinking workforce could lead to heftier taxes to keep everything ticking along, which is likely to dent economic growth in the long run. And sure, in an ideal world, a surge in productivity could turn things around. But let’s be real: we haven’t seen one of those in 15 years.