As an active investor I am acutely aware of the seemingly never ending volatility and uncertainty in world markets, particularly in China. It has caused me to wonder what’s in store, and apparently my readers are wondering too. Let’s look at where the “economic turmoil” began, what is being done to fix it, and how can investors profit from it.
Since initiating market reforms in 1978, China has moved to a market based economy, and in doing so, has experienced significant economic and social development. That said, averaging 10 percent GDP growth per year, the rapid economic rise brought about many challenges for Chinese officials. It has been some of these new challenges have contributed to the country’s GDP drop to 6.9 percent in 2015 and inspired savvy investors to rethink the role that international turmoil plays in the performance of their portfolio.
[The Chinese economy] is hugely resilient and has enormous potential and ample room for growth. Domestically, problems and risks that have been building up over the years are becoming more evident … but, there is no difficulty we cannot get beyond. – Li Keqiang, Chinese Prime Minister
Although there are analysts who believe China faces tough battle to keep the economy growing by at least 6.5 percent over the next five years, The head of China’s National Development and Reform Commission (NDRC) insists that the Chinese stock market is not dragging on the global economy, and that China is not headed for the “hard landing” some are predicting. In fact, although China’s 6.9 percent growth in 2015 is the slowest pace the nation has grown in a quarter of a century, it is still the fastest among major economies; AND full of opportunities for investments in shipping and investing in global trade.
China will absolutely not experience a hard landing … These predictions of a hard landing are destined to come to nothing. – Xu Shaoshi, Head Of The National Development And Reform Commission (NDRC) [Routers]
Some market experts say that taking on more debt could help the Chinese government achieve its target of 6.5 to 7 percent economic growth in 2016, but the financial cost could over-burdening banks with even more loans to aimed at encouraging growth and trade; like those offered to fund China’s One Belt, One Road initiative across Asia, Europe and Africa.
It is important to note that this GDP target is particularly important if they are to achieve the minimum growth rate of 6.5 percent (per year) needed to achieve President Xi’s goal of doubling the size of China’s economy by 2020; relative to its size in 2010 when the assertion was made.
Without question the international investment community is looking to China for assurances that it can manage its slowing economy and tame its tumultuous stock market. But, I see this as a real challenge for Chinese officials, particularly as they find themselves helpless in the battle between President Xi’s economic goals, his political objectives, and an impending financial crisis. For investors to still profit despite the turmoil, investment will have to be made in the industries and sectors that help China achieve its economic goals; like investing in the shipping industry for example.