China’s Economic Outlook Brightens After Surprise U.S. Trade Deal
After a Trade Truce with the U.S., Investment Banks Raise Growth Estimates for China
Investment banks seem to be more confident about the Chinese economy after a landmark, sudden trade truce between the two countries. Announced on Monday, the agreement provides some temporary counterbalance to the further escalation in trade tensions, and a number of financial institutions have since raised their forecasts, both for china's growth and market price. The Hidden Turn
The agreement to basically halt the imposition or increase of tariffs for 90 days comes after months of tit-for-tat tariff hikes. The U.S. and China had been engaged in tariff increases that had gone as high as 125% from just 10%. This has imparted new hope into the global investors, banking strong in near-term cohesion of the Chinese economy.
A Turning Point in U.S.-China Trade Tensions
Tariffs were eased just after a period of intensifying tensions that started with former U.S. President Donald Trump imposing new `reciprocal' tariffs on Chinese products in April earlier this year. On the enforcement side, both nations were hitting each other with higher tariffs on goods, alarming the business community and financial markets. Many banks have responded to this series of uncertainties by lowering their growth forecasts for China. Behind the scene
However, this new understanding on trade has given trigger to several investment banks to pick up their forecasts.
UBS has increased its forecast for China's GDP from 3.4% under its previous projection to somewhere between 3.7% and 4.0% in 2025, expecting that with fewer trade frictions, the downside risks to China's economy will not be as grave as previously thought.
Morgan Stanley has also lifted its growth prospects, projecting that Chinese corporates will speed up exports while the window for low-tariffs persists. This, according to them, will probably lead to better economic activity than expected in the second quarter. According to Robin Xing, Morgan Stanley's chief China economist, China might even exceed its previous GDP estimate of 4.5% in this period; in addition, third-quarter growth should also hold up better than earlier expected with forecasts now just above 4%.Whispers of Growth
Likewise, ANZ Bank, which had prematurely lowered the 2025 forecast from 4.8% to 4.2%, now sees some potential for the actual number to top 4.2%. The French institutional bank Natixis has also readjusted its projections, claiming that growth could hit 4.5% this year, assuming that the government provides further stimulus and tariffs remain depressed.The 90-Day Secret
Stock Market Gets a Boost
The improved economic picture has also encouraged investors to feel more sanguine about China’s stock market.
Nomura, a Japanese financial firm, raised its stance on Chinese stocks to “tactical Overweight.” That is to say, they now suggest investors hold a higher percentage of Chinese stocks in their portfolios relative to the past. They have also moved a part of their investment away from India to China, reflecting their higher confidence in the Chinese market.Inside the Change
Citi, for example, lifted its target for the Hang Seng Index — a major Hong Kong stock index — 2 percent higher, expecting the index to reach 25,000 by the end of 2021 and 26,000 by mid-2026. Still, Citi’s strategist Pierre Lau says he would rather invest in Chinese firms that cater mainly to domestic customers to ward off any potential risks from future tariffs. He now likes the consumer sector, and finds China’s internet and tech industries promising.
Eddy Loh, chief investment officer at Maybank, also cites a number of sectors that offer good investment opportunities, including communication services and consumer goods. But he says that the stocks are not that expensive still in China and offer a good risk-reward balance.
But for William Ma, who leads investments at GROW Investment Group, it’s more than just a rebound in the Chinese market. He argues that continued government support and policies to induce spending will drive the economy forward and bring even more investors into the market.
China’s CSI 300 Index perked up on Tuesday, rising lightly after a robust 1.6 percent gain the day before. The Hang Seng Index in Hong Kong and the CSI 300 index of major Chinese companies listed in Shanghai and Shenzhen rose by almost 3 percent on Monday before falling 1.5 percent on Tuesday.
Experts Advise Caution
Some of the experts warn not to get too excited amid all the positive news. They argue that the 90-day layoff from exorbitant tariffs is not a permanent solution. Gary Ng, a senior economist with Natixis, says that both the U.S. and China do not fully trust each other, and that might cause another round of problems. Unseen Moves
Dan Wang, China Director for research firm Eurasia, concurs. He says the markets were caught by surprise by the trade agreement and thus reacted so positively. But she warned that this short-lived solution does nothing to address the deeper issues in U.S.-China relations.
She also articulated China's ongoing issues at home—weak property market and high local government debt—that could serve as constraints on how much support the economy and markets could generate from the government.
Trump's own history with tariffs also makes some analysts wary. He has previously used tariffs as a political tool and could raise them again on a dime if that serves to bring more pressure on China. "This is only a temporary pause," she said. "It is not a long-term solution."
Summary
The trade truce that has just recently come into place between the United States and China had been seen as promising better prospects for economic growth on the Chinese side, several investment banks are now forecasting better GDP and better stock performances. Yet the experts warn that this is just a short-lived deal; it does not tackle the larger problems in U.S.-China relations. Thus, while markets are celebrating at present, in the longer term, the brighter-side still-lies-with-deeper
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