On 22 September in London VTB Capital held a roundtable breakfast discussion with members of the research team. The session posed a question occupying the minds of many at the moment: “What does the future hold for China’s economy?”. The event was attended by a range of top-tier financial journalists, academics, researchers and think-tank members.
Wiktor Bielski, Head of London Research, and Neil MacKinnon, Global Macro Strategist, explored recent macroeconomic and sector specific trends and their implications for China and the wider global economy.
said: “China matters. It’s the world’s second biggest economy, the biggest importer of commodities and has the world’s biggest banks. There is a real danger that if the current slowdown in growth ends in a hard landing for the Chinese economy, it could unleash a spiral of global deflation. All credit-fuelled bubbles cause recessions when they burst, and I’m not sure China will be any different. This would be a global recession ‘made in China’. That remains an outside scenario rather than our base case, but the risk is certainly large enough that the Fed is now looking at China as the key consideration on whether to raise interest rates.”
said: “The commodities markets are a crucial element in the future of China’s economy. Sentiment has been overwhelmingly negative in the past few months at an unprecedented level, with fund short positions reaching record highs in many exchange-traded commodity futures. The surge in speculative fund trading has seen algorithm-driven models overpowering underlying fundamentals, resulting in a growing decoupling of commodities prices from historic economic and supply-demand drivers, with sharply rising volatility and a number of flash crashes. Meanwhile, production in China has surged (almost as fast as demand did previously), but driven by strategic factors and the need to create jobs and GDP, rather than by a focus on economic returns. Extensive government subsidies allow Chinese producers to ignore high marginal costs, with ongoing construction of new steel mills and aluminium smelters despite existing major overcapacity; however, the Chinese economy needs consumer jobs, not smoke-stack jobs.”
Head of Press