Back in July, we made a prediction… We were talking about the next megatrend.
Namely, the continuing growth of China. After the country’s economy showed signs of weakness, we said that the Chinese government would unleash an economic stimulus that would create another megatrend:
China’s economy will likely get worse before it gets better.
Unless China’s government does what it did in the past: unleash a massive stimulus package.
If it happens, we could see tens if not hundreds of billions of dollars’ worth of investment in green technology, infrastructure, and other sectors.
And it looks like such a stimulus is very likely.
And now, the data is in, and it confirms our prediction.
China’s Economic Stimulus Boosted the Country’s Economy
In August, retail sales and industrial production in China grew faster than expected.
It happened in response to the government’s stimulus measures.
One of them was a lower reserve requirement ratio for banks. In effect, it allowed Chinese banks to lend more money to households and businesses… which increased the liquidity in the system and allowed businesses to finance expansion.
And that’s exactly what happened.
The People’s Bank of China also lowered the interest rate used to finance institutional borrowers.
This also added liquidity to the system. It made financial conditions easier in the country.
Higher liquidity could also support the country’s lagging property market.
In our view, a bigger stimulus package will be introduced to address exactly that.
What’s Next for China?
The Chinese government has started its stimulus program slowly. It’s understandable. It doesn’t want to overheat the economy and deal with soaring prices.
But we would be surprised if it stopped here. After all, not every aspect of China’s economy looks good right now.
Growing industrial production and retail sales have shown that the steps taken already have been working.
So now it’s a matter of adding other stimulus measures to the arsenal.
Government subsidies and tax breaks could be up next. They would further stimulate both businesses (through higher profitability) and households (through higher wages).
This, in our view, will be the key point in the post-pandemic narrative for China.
If it’s reached (as we expect), we will see another stretch of economic growth in the country.
And the impact will be felt throughout the world.
“New Economy” Commodities Could Get a Boost
When China’s government stimulated the economy after the 2008-2009 crisis, the focus was on construction and infrastructure.
And the effects were remarkable. Chinese demand lifted commodity prices pretty much across the board, from energy to copper and iron ore.
Now, we would expect China to double down on green energy infrastructure instead of housing or roads.
The country is already a clean technology leader. But there’s still work to do, and speeding up China’s transition away from fossil fuels is high on the government’s priority list.
This is a catalyst we have been waiting for.
It will support the global “China’s comeback” megatrend that we talked about in July… and also boost green commodities, such as copper, lithium, and rare earth elements.
We already see signs that the country has started turning around. In the coming months and years, we expect this trend to accelerate.
Thank you for your loyal readership,
The Financial Star team