A slowing Chinese Ox?

Happy Friday,

For President Xi Jinping, the year of the OX should have been one where big strides were made to achieve his Vision of “The Chinese Dream”, a plan to make China the leading nation in society, politic, economy and military. Therefore, negative news casting doubt on the origin of Covid is not welcome. However, a bigger threat to his power could be a crippling economy.

Last Friday the People’s Bank of China (PBoC) signaled their concern of slowing down of China’s V-shaped economic recovery by cutting the amount of cash most banks must hold in reserve in order to boost lending. This 50 basis-point cut came as surprise for the market and will stimulate the economy with 1 trillion yuan ($155 billion) of long-term liquidity. This week’s quarterly GDP numbers show growths of 7.9% yoy (prev 18.3%) added to the current mood of concern. China (like so many other nations) are amongst other things, holding back for a full recovery due to higher raw material costs and supply shortages. Officially PBoC is less concerned about the short term inflation pressure, therefore investors will watch Monday’s rate decision and comments very carefully to see if there is a shift to an easier policy stance after this week’s numbers and last week’s change in reserve rate. However, the market does not expect any changes on the current long prime rate.

Xi Jinping will watch the further development very carefully as the Chinese Dream is mainly based on a strong economic improvement for the people and any hiccup could threaten his power bases. But the “Chinese Dream” vision is not only based on the economy but also on the bigger national feeling. His promise to the people of China to bring the country back to old glory. His increasingly aggressive foreign policy in South East Asia seems to be a smart diversification of his legitimisation of power which will help to secure his position even though the economy is slowing down.