The Chinese economy was showing signs of a slowdown even before the COVID-19 contagion spread around the country and internationally. The World Bank, in its October 2019 global economic growth forecast, projected that China’s GDP increase would moderate to 5.9 per cent this year from 6.1 per cent in 2019. A 5.9 per cent gain would be the lowest rate of increase in the last 29 years, since Q1 of 1992.
Expectations for the country’s 2020 GDP growth decreased dramatically in February as the negative impacts from the coronavirus became clearer. According to Bloomberg: “Economists have repeatedly marked down their growth forecasts on the slow resumption of business. The median forecast for year-on-year growth in the first quarter is 4.0 per cent, the weakest in 30 years,…according to a February survey”.
Major reasons for China’s economic weakness in the first quarter, tied to the coronavirus, included contraction of industrial production and the slowdown in retail sales, as well as a significant decrease in construction and infrastructure investment. The damage to construction activities came to a large extent from the strict quarantine measures introduced by the Chinese government that restricted the movement of migrant workers and limited the progress of construction projects.
In addition, the overall decrease in domestic consumption, as well as in industrial production, are likely to result in a future contraction in capital expenditures by many companies, leading to pressure on ongoing and future demand for construction.
Historically, the Chinese government has reacted to economic problems by providing stimulus through monetary policy easing as well as an increase in infrastructure investment. During the Asian financial crisis, every year from 1998 until 2002 the Chinese government issued RMB 100 billions of special treasury bonds in order to support investments in roads, railways, telecommunications facilities, power generation projects, etc.
During the 2008 global financial crisis, the government of China took a similar, but even more vigorous, approach and introduced an economic stimulus of RMB 4 trillion, with the biggest share of the funding (RMB 1.5 trillion) directed towards irrigation, airport, railway, road and other infrastructure developments.
History seems to be repeating itself today as, in the first two months of this year, local Chinese governments, have already issued projects-related special infrastructure bonds for RMB 950 billion. The 2020 annual limit for new infrastructure bonds amounts to RMB 3 trillion.
The Asia Times news portal reports that as of the beginning of March: “13 major cities and provinces, including Beijing, Shanghai and Fujian province, released investment plans and “major infrastructure” projects for 2020. Eight cities and provinces announced their investment budgets, which in total amount to 33.83 trillion yuan (US$4.8 trillion). Another eight provinces said they would invest up to 2.79 trillion yuan in total, although they have yet to announce their plans.
The strategic allocation of the new infrastructure investment this time will be noticeably different from the previous economic crises, as most of it will be channelled towards the high-tech industry. Out of 25 regions that are indicating new infrastructure projects, 21 are planning to develop 5G networks, according to the Xinhua news agency.
These new investments and development plans come on top of the 26 infrastructure projects approved last year for construction in 2020 and beyond, with the top 10 projects costing over RMB 40 billion each. The overall investment in the approved projects amounts to approximately RMB 982 billion.
China’s government has also identified the need for a more selective approach towards the new infrastructure investment, with higher return requirements due to weakening exports and dipping real estate investments. The need for higher returns on government-approved infrastructure investment also explains the recent switch towards high-tech projects that are likely to be more profitable than the traditional bricks and mortar investments.
The outbreak of COVID-19 also has the potential to increase pressure on investment in China’s international projects developed under the Belt and Road initiative. During these times of economic difficulty, the country is more likely to direct its resources towards improvement of its domestic economy, rather than investing in international projects.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
