China continues to be on top of the mind as foreign fund inflows into emerging markets slump. There seems to be a perceived slowdown – the dollar index has gone all the way above 94 – a sign investors are preferring US markets over emerging (EMs).
The dollar on Wednesday surged to a one-year high against major currencies, boosted by increased expectations for a reduction in the US Federal Reserve's asset purchases starting in November and an interest rate hike, possibly in late 2022.
The greenback also fared well despite an impasse in Washington over the US debt ceiling that threatened to plunge the government into a shutdown.
Is this climbing dollar sign of a slowdown in the Chinese economy? Reeling with crackdowns on big businesses, tech firms, and property firms, and the latest power outages, is the Chinese economy slowing down?
Also Read: Power shortage issue unlikely to significantly impact China’s overall growth: Standard Chartered’s Becky Liu
Despite the Evergrande’s debt crisis, a Lehman Brothers moment for China and its housing market is unlikely, Xinxin Li, Managing Director and Senior China Analyst at Observatory Group said. Because, he said, “we are expecting an imminent government intervention into this debt crisis.”
However, he said, this is still quite an uncertain period for the Chinese economy. Uncertain because “in the past two decades, we have seen this housing market and price always go up, up, and up. We have never experienced a full cycle of the Chinese housing sector,” he said.
On top of this, power shortage could become another major constraint for China’s future economic growth, he added.
China's efforts to improve conditions in its coal mining industry led to weak supply growth and skyrocketing coal prices. And coal accounts for about 70 percent of China's energy consumption.
Also Read | Power shortage in China a function of demand, not regulatory crackdown, says EM Equity Strategist Adrian Mowat
Plus, in late 2020, China announced cutting down carbon emissions per unit of gross domestic product (or carbon intensity) by 65 percent.
And in the coming months, the global leaders will gather at the Glasgow United Nations Climate Change Conference. And the whole world is expecting China to make more commitments to energy efficiency and emission cuts. Xinxin Li believes this would slow down the Chinese economy.
“I would expect a significant slowdown in the coming months,” he said.
However, he briefly expects the power shortage issue to resolve in early October. “In early October, China has Golden Week, a one-week long national holiday. We would expect during that period this very tightened energy supply-demand situation will ease a bit,” he said.
But in general, this situation, especially the coal supply will likely sustain the rest of the year, he added.
For the full interview, watch the accompanying video.