While the real economic effect on trade hasn't been that big so far, the knock-on effect, the pessimism that it is causing, is real and is now also starting to affect various asset prices, especially the property market. China has not experienced a declining property market before, so it is anyone's guess as to how this plays out in the medium term.
However, the trade pressure put on China by the US may as well in the medium- and long-term turn out to be actually good for China. Joe Zhou from Ortus Capital says he sees signs: "There is an intense debate among Chinese advisors and government officials alike about where China is heading as a country, and literally everyone is reflecting on the past 40 years of reform. I think the debate is unprecedented... I think China could go through a second stage of reform, thanks to the pressure from the United States, in terms of protection of intellectual properties and equal access into the markets by various enterprises, public, private, and foreign etc. I would say that there are a lot of things on the table right now, and we could actually be surprised by the developments because President Xi is a do-er, he can pull the trigger. So, from a western point of view, we could be positively surprised by the outcome of this debate and how China sets the course for her future."
Of course, what Joe is talking about here is a secular shift that needs to happen and be integrated over many years. What we have seen since 2018 however is investors voting with their feet.
How is the Chinese government acting right now? China looks a lot different now than it did 10 years ago as debt levels have doubled. This time around it can't be about building another railway system - they already built it - the solution will have to come from other parts, and so this time private businesses come into focus. Across many ministries, the Chinese government has been promoting a lot of measures to support private enterprises. We hear there will be some new policy initiatives, for example tax cuts - maybe 25% tax cuts for corporate rather than for individuals. This shift in the Politburo's attention from state owned to private sector companies will obviously create some winners and losers.
The Opalesque 2019 Hong Kong Roundtable, sponsored by Societe Generale Prime Services, took place in Hong Kong with:
Joe Zhou, Ph.D., CIO & Executive Director, Ortus Capital
Ted Chen, CIO, About Capital Management
Stephen Woodrow, Director, Societe Generale Prime Services
The group also discussed:
Making money despite the crisis: FX, commodity arbitrage, macro (page 5, 6, 10, 15). Are easy stock pickings coming back? (page 20-21). Risk management (page 14-15)
Is the CNY rate important to the overall financial system? (page 11). How the Stock Connects and MSCI are changing the world of investing. What's next for ChiNext? (page 8, 12, 18, 24-25)
A new wave of privatization? (page 20-21). Outlook for commodities (page 22)
How China is making new friends (page 10). Inside One Belt, One Road (page 22-24)
Has the US already reached neutral rates, and how does this affect China? (page 13, 21)
Is globalization dead? Why Trumpism, Brexit, etc. are all cut from the same cloth (page 15-17, 24)
Investor demand for multi-strategy, CTA, Greater China long/short equity, and "anything that's uncorrelated" (page 24)
Mainland Chinese investors a boon for alternative investment managers (page 25)
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