The bond market doesn’t see Chinese growth rebounding any time soon
China’s 10-year government bond yield has slipped below 2% in a sign that investors see little proof it will reverse a nearly half-decade economic slump.
China’s economy has been a mess for most of the last five years. Pick your reasons: Covid, followed by harsh lockdowns. A poorly thought through crackdown on Chinese tech companies. One of the worst ever housing busts. Credit markets on the fritz. Financial stability concerns. Consumers woes. Tetchy trade relationships. We could go on.
But recently, the Chinese Communist Party in charge of the world’s second-largest economy has shown signs it is belatedly taking the situation seriously.
In just the last few months, government officials have announced plans to boost central government borrowing, help local governments deal with their debt problems, ease home-buying, and increase car-buying in a cash-for-clunkers-style program. Its central bank has also cut rates and supported the stock market, which briefly generated massive gains for Chinese stocks.
But those stock gains have fizzled. And perhaps more importantly, over in the bond market, the yield on China’s 10-year government bond slipped below 2%, amid a persistent flood of cash to the safety of government debt. (Remember, as bond prices go up, bond yields go down.) This suggests the verdict from the markets, even after the recent raft of headlines about stimulus programs, is too little too late. (For more on the what the bond market is saying about the economy, see our reporting here.)
Of course, now China will have an additional challenge in the form of one Donald J. Trump, when he returns to White House in January. He’s already threatening fresh tariffs on Chinese goods, which will make China’s traditional strength in exports even less helpful as it tries to bounce back.
It goes without saying that what happens in China doesn’t stay in China. Massive US companies like Apple and Tesla — whose giant market caps give them sway in stock indexes like the S&P 500 — often top the ranks in lists of companies with exposure to the East Asian giant.
