An underestimated factor in the global economy’s recovery from the credit crunch has been the impact of a giant fiscal stimulus implemented by the Chinese government.
The stimulus, a $568bn (£462bn) package, which was spent on roadbuilding and other infrastructure projects, boosted demand for commodities such as industrial metals and fuelled a wave of fixed asset and real estate investment within the country.
And while the economic data in Europe and the UK has been slightly better than expected, it is the reopening of the Chinese economy and society that has provided the bulk of recent optimism in the developed world.
At the same time, Chinese consumers were relatively unscathed by the impact of the financial crisis and in many cases had increased spending power, which boosted global demand for items such as cars and consumer goods.
But the key question for advisers and their clients is whether a repeat of the upwards 2008 trajectory for the Chinese economy is on the cards, and what this would mean for the rest of the world.
Federated Hermes senior economist Silvia Dall’Angelo says: “The reopening of the Chinese economy will probably mean a slight boost for global growth and for global inflation, but I don’t think it will be on anything like the scale we saw after the global financial crisis.”
She adds that following the global financial crisis, Chinese policymakers embarked on a spree of investment in infrastructure.
This type of spending tends to boost the rest of the world, have a high multiplier and extensive spillover effects, as economists call it, because infrastructure investment requires spending on commodities that are produced outside China.
But Dall’Angelo says that policy priorities have changed, with a new focus on decoupling China from the rest of the world and a determination to grow the Chinese economy in isolation, rather than be part of the global economy.
Mike Kerley, who runs the Janus Henderson Asian Dividend Income investment trust, says Chinese consumers are estimated to have built up $2.6tn in excess savings as a result of the pandemic.
Zhixin Shu, senior equity analyst at J Stern and Co, recently returned to China for the first time since the pandemic began. She says the excess savings built up could amount to as much as 10 per cent of gross domestic product.
The key here is that even if Chinese government policy is less stimulative than was the case after the global financial crisis, the spending of these accumulated savings could have much the same impact.
Kerley says the initial data from the recent Lunar new year celebrations indicates that the bulk of the travel occurred within China, rather than in overseas destinations, indicating that wider Asia and Europe may not yet be benefiting from an increase in tourism.
