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Chinese Economic Update – 06 April 2015

China lowers growth target, Premier states that policy makers “should focus on more than just the growth rate”

Chinese equity markets have continued to perform strongly throughout recent weeks as key decision makers in the politburo provided yet further signals that monetary policy could still ease further during the months ahead.

This was as the Chinese Premier Li Keqiang spoke at the annual National People’s Congress in March where urged policy makers to focus on “more than just the growth rate”, before assuring the audience that the nation has all of the tools necessary to prop up the economy if jobs begin to dissipate and incomes succumb to market pressure.

These, among other statements, could be taken as the clearest indication yet that growth could be slowing faster than the outside world had anticipated in China. In light of this, it is particularly worthy of note that annual GDP growth target was also revised lower at this meeting, from the previous 7.5%, down to 7%.

While it is not possible to know exactly when, how and why the Chinese government will make its next move, what is clear is that what we have heard so far is likely to amount to a very supportive environment for Chinese equities.

Most notably, a slowing Chinese economy will likely command further interest rate cuts and potentially, monetary stimulus.

From a wider perspective, further rate cuts in China should also be positive for the global economy as they may serve to ease concerns among businesses over whether or not the country is heading toward a hard landing.

Looking to the immediate future, Chinese inflation figures will be released this week. These are important as inflation, which has fallen fast in China over the last 18 months, will be a key determinant of PBOC interest rate policy.

Furthermore, CPI is now at 1.4%, which is striking given that the nation’s inflation target has been 3.5% for some time now (lowered to 3.0% in 2015).

(More to follow shortly)

SSE Composite Index / Daily Intervals

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