"There’s still a mountain of debt and major structural challenges to address. But compared to hard-landing fears in early 2016, and expectations of a pronounced slowdown at the start of the year, China’s economy outperformed in 2017."
In a year that began with fears of a trade war with a newly elected Donald Trump, exports turned back into a growth engine for the world’s factory floor. The contribution of net external trade to growth improved by around 0.4 percentage point in real terms last year, “more than fully explaining the pick-up” in GDP growth, said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.
Reflation was also key to boosting company profits and raising their ability to service debt. The GDP deflator for the full year, a gauge of economy-wide inflation, came in at 4.33 percentage points, while nominal growth accelerated to 11.2 percent. GDP in those terms grew to 82.7 trillion yuan ($12.9 trillion) -- up 8.4 trillion yuan in the year.
"Another Indonesia created in one year!" said Jim O’Neill, former chief economist at Goldman Sachs Group Inc. "The nominal GDP size confirms China has diminished the previous deflation risk and silly comparisons with 1980s Japan were just that, silly."
There is nothing quite like synchronised global economic expansion to flatter the prospects for exporters as demand increases for just about everything. That is helping China to outperform expectations and eases the burden on the economy from the efforts underway to deleverage the shadow banking system which primarily affects unlisted regional lenders.
The CSI 300 Index broke out to new recovery highs today to reassert demand dominance. The reaction from the November peak was reasonably modest but did coincide with a reversion to the mean on the Shanghai A-Share Index. A clear downward dynamic would be required to check momentum while a sustained move below 4000 would break the medium-term progression of higher reaction lows.
The Shanghai Property Index continues to extend its breakout from a more than yearlong range and a clear downward dynamic would be required to check the advance.
The UK listed JPMorgan China Investment Trust trades at a discount to NAV of 9.55% and yields 0.49%. Its largest holding is Tencent, which is representative of a broad Chinese technology focus for the fund. It is testing its highs at present.
The US listed China Fund Inc is trading at a discount to NAV of 7.55% and yields 2.35%. 2017 was the first year in a while that it did not pay a special dividend. The fund’s largest holding is also Tencent which surged to another new high this week, but it has a more diversified portfolio overall than the JPMorgan China Investment Trust.