China’s shifting to a ‘new normal’

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Nov. 27 2019, Updated 9:31 p.m. ET

The Asian Infrastructure Investment Bank

On October 24th, Chinese President Xi Jinping and representatives from 20 other Asian nations signed an agreement to establish a $50 billion Asian Infrastructure Investment Bank (or AIIB). The bank will lend money to build roads, mobile phone towers, and other forms of infrastructure in the poorer parts of Asia.

Spearheading the initiative it first proposed in October 2013, China will provide most of the seed capital needed for the new bank. The move is China’s official answer to Asia’s huge infrastructure funding gap.

China QoQ GDP growth rate

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China shifting towards a new normal

China’s economic growth slowed to a five-year low of 7.3% in the latest quarter. According to the IMF (International Monetary Fund), China should lower its growth target to no more than 7% for next year. The New York-based Conference Board forecasts that China’s economic growth will decelerate to 4% a year between 2020 and 2025.

While lauding the benefits of Chinese development to the world, the Chinese President Xi Jinping said in a speech on November 9 that China’s economy is indeed shifting to a “new normal.” Jinping’s new normal means slower but more stable economic growth and an economy that is resilient to geopolitical events.

Investors invest in China through the iShares FTSE China 25 Index Fund (FXI), the iShares MSCI Hong Kong ETF (EWH), and the iShares MSCI Taiwan ETF (EWT). Asian ETFs such as the Vanguard FTSE Pacific ETF (VPL) and the iShares MSCI All Country Asia ex Japan Index Fund (AAXJ) also invest in Chinese equity.

Over the next ten years, China’s overseas investments are expected to increase to over $1.25 trillion. Meanwhile, China is trying to shift to a consumption-driven economy, which would reduce reliance on outbound investment and exports.

China and the United States together intend to become an anchor of world stability and propellers of world peace, as we’ll discover next.

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