Positive outlook for China markets


Positive outlook for China markets
Well with recent news about Huawei sales top USD $105.2 billion despite US-led pressure as revenue from the smartphone division increased by 45 percent, it proves Huawei is a massive consumer brand which many people love. Huawei is an independent, privately-held company that provides information and communication technology (ICT). They were founded in 1987, in the southern Chinese city of Shenzhen, with about 21,000 RMB in start-up capital. Since then, they've grown to become the world's largest supplier of telecommunications equipment and the second-largest manufacturer of smartphones. Huawei employs 180,000 people in more than 170 countries. They are a market leader in China and many countries across Europe, Asia, and Africa. More than 3 billion of the world's population uses Huawei's products and services to make calls, send text messages, or surf the internet.
Looking back over last few years financial markets point towards a simplified overview of the complexity of China markets. It is being accused of causing a coming recession and slump in stock markets. China has links to the global economy but it is not direct. China is trying to balance between its new growth plans and developing sound financial infrastructure. It is on the right track in order to have a more sustainable growth rather than continuing pumping out goods because there must be underlying demand to sustain economic growth.
China is getting sound progress by shifting its economy to more service based instead of traditional manufacturing. It is an important progress compared to GDP growth alone where people are mostly obsessed with. Most people have been reading too much on the GDP growth rate and trying to figure out the accuracy of the figures. The end of commodity super cycle caused pain to resource economies from Brazil to Canada. The countries were slow to react. It is obvious in fall in oil price even as China uses coal for 70% of its energy consumption. China used 40% of total oil consumption growth in 2014. The plunge in crude oil prices was due to China shifting to services having lower carbon usage. Same goes for metals and industrial materials. There are roadblocks to China's progress in financial reform and economy rebalancing. This is marked by the 2015 stock market crash which spilled over to 2016 and affecting global markets. Regulators had been slow to react to the market bubble in 1H 2015. They tried to stabilize markets by implementing equity purchases and circuit breakers. Many were confused. China had been trying hard to develop its bond markets but have not seen much success. Equity markets regulations were also not definite. A deeper problem is not the crash but an inadequate capital markets which has been heavily reliant on banking institutions. It is a huge letdown in terms of financial reforms.
China is facing a huge risk of capital flight. Beijing's policy of devaluing the renminbi against US dollar may spark currency wars similar of the Asian Financial Crisis that caused south East Asia countries to fall into a deep recession. However this scenario is unlikely as renminbi had been appreciating strongly over the past 10 years and is now trading around its fair value. Its current account surpluses had decrease, which eases the pressure of forcefully adjusting the currency. Renminbi has depreciated 6% against the US dollar in July 2015, but still at a high of 25% appreciation since 2005. China's currency is effectively up 50% against all major trading partners' currencies. China has reasons to slow down the appreciation of renminbi. Its impact will not be severe as the depreciation need to be of larger magnitude in order to spur exports. It is in direct conflict with Beijing's main objective of shifting export driven to consumption driven demand. IMF may decide to withhold inclusion of renminbi in the unique drawing rights scheme.
China has many challenges, ranging from excess leverage and property market imbalance as well as overcapacity for its industrial sector and deteriorating environment. Beijing leader are closely monitoring these issues in their policy debates. Beijing must take good care to balance the economic growth and financial reformation. Economic rebalancing cannot be achieved if capital markets restructuring are in disarray.
Markets need to cool down. There is no real risk of hard landing for China. Recovery in oversold markets could give investors a temporary sigh of relief. One bad news affecting markets is central banks have begun to remove the man-made support of monetary stimulus. That would be worse than China's reported dire situation.


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