Is Slower Growth in China a New Standard?
China’s GDP growth
The Chinese economy is expected to grow 6.5% in 2017 as it continues to undertake fiscal stimulus measures and monetary policy changes. China is currently struggling to improve the pace of its economic growth, as it is pushing its reforms to deal with the high levels of debt and overheating in the housing market. The chart below shows the country’s GDP growth over the last three years.
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Lower growth expectations
China’s GDP saw 6.7% growth in 2016, within the government’s expectation of 6.5%–7.0% growth. However, it was the lowest recorded growth in the last two decades, as China transitions to a demand-driven economy. China’s administration expects its GDP growth to be in the single digits in the next few years as it moves through its structural transition.
The International Monetary Fund expects China’s economy to grow 6.5% and 6% in 2017 and 2018, respectively. China’s growth picked up in 1Q17, mainly due to rising investments and a recovery in exports.
In the fifth session of China’s 12th National People’s Congress (or NPC) in Beijing on March 5, 2017, Premier Li Keqiang stated that the stability of China’s economy was the primary goal in 2017.
Over the last two years, the average GDP growth rate in China has been around 7%, much lower than the average growth rate in the last decade. Lower GDP growth in comparison to the last decade and a focus on stability is expected to impact its market performance in 2017–2018.
Looking at ETFs
In 1Q17, the iShares China Large-Cap ETF (FXI) and the SPDR S&P China ETF (GXC), gained about 10% and 14%, respectively. These ETFs track Chinese companies listed on the Stock Exchange of Hong Kong. Some of the top holdings in these ETFs include Tencents Holdings (TCEHY), China Construction Bank (CICHY), China Mobile Ltd. (CHL), and Industrial and Commercial Bank of China (ICBC).
In the next article, let’s look at the trade deficit between the US and China, which was an important agenda in the meeting between President Donald Trump of the US and President Xi Jinping of China.