Blue Quadrant Research Team 0 comments Market Insights
Negative Outlook for China Economy, Fixed Investment and Key Global Linkages
The large growth in credit over the past five years has led to a massive capital misallocation. There exists widespread evidence of a significant capital stock surplus in certain sectors, such as residential- and commercial-property.
Chinese fixed investment has averaged 50% of GDP over the past five years, an unprecedented level relative to other economies both past and present.
Chinese fixed investment spending has been a major driver of global demand for industrial commodities, particularly steel and iron-ore. A substantial slowing in Chinese fixed investment spending creates substantial downside risks for industrial metals
Low global interest rates and access to cheap US Dollar funding has led to the large-scale use of cheap US Dollar funding to finance risky investment projects in China. Unwind of this trade could lead to systemic risks in certain key banking centres, such as Hong Kong and Singapore and Australia by association.