With the stock market recovery we have been seeing since the beginning of the year, one country is out of sync with the rest: China.
And yet, that country suffered less from the pandemic, health-wise, than the rest of the world and, in fact, benefited considerably from the situation on the trade front, as seen by its trade surplus. Surprisingly, it is just this economic success that may explain the country’s relative under-performance. Other countries used a combination of monetary and fiscal policies to stimulate their financial markets. The billions they injected sharpened the decline in long-term interest rates and drove individuals to invest their surplus savings in the stock market, thus sustaining the rise in the equities markets that has lasted for over a year.
« The dichotomy between the highest stock market in history and a real economy struggling to dig itself out of a profoundly destabilising health and economic situation for the social, economic, and moral fabric of individuals is troubling. »
But the unconventional monetary policy implemented by the central banks has disrupted the natural relationship between the economy and the stock market.
The situation is very different in China. Not only has there been no fiscal plan or changes to monetary policy, but the government seems determined to limit and control “stock market bubbles” or, in fact, anything that could weaken its power and control over the economy. Examples of this are legion:
- They include the blocking of access to Bitcoin for the Chinese, slated to be replaced by a crypto-currency controlled by the Chinese Central Bank,
- Or the “crackdown” on the Alibaba group and its chairman, seen as a threat to both the public banking system and the official media, and therefore to the political regime,
- Or the increased control over the Provincial financial systems and the ever-more-precise “earmarking” of financial flows for industries identified as indispensable to China’s objective of gaining independence from the United States and taking first place internationally.
This controlled, systematic, and targeted approach has made China a force to be reckoned with and represents a major challenge for the Western world.
The past few weeks have brought to consciousness the “steamroller” effect of China. While we have gotten used to American reactions, we have also been seeing growing tensions between Australia and China. But the arrival of the new administration in the United States seems to have sped up the negative reactions to China, including within the European Union.
But to win in this confrontation, Europe must move forward united, give itself a cohesive, targeted, strategic industrial policy, and take a common position on the geopolitical stage.
Director of the International Actions division
May 31, 2021
Covéa Finance, a portfolio management company of the MAAF, MMA and GMF groups with share capital of €24 901 254, incorporated as a single-person simplified joint stock company, registered with the Paris Trade and Companies Register under number 407 625 607 and approved by the French Financial Markets Authority under number GP 97 007.
This document is produced for information only and cannot be considered as an offer to sell or investment advice. It does not constitute the basis for any commitment of any kind, nor a strategy assessment or any recommendation to invest in financial instruments. It contains general and non-personalized opinions and analyzes designed by Covéa Finance on the basis of figures that it considers reliable on the day of their establishment depending on the economic context, but the accuracy and validity of which are however not guaranteed. The views expressed in the document are subject to change without notice. Covéa Finance cannot be held responsible for any decision taken on the basis of information contained in this document. This document is the intellectual property of Covéa Finance. Any Use (defined below), reproduction or distribution of all or part of this document must be subject to the prior authorization of Covéa Finance. The recipient of this document is aware of and accepts that the quantified data, allowing the establishment of general and non-personalized opinions and analyzes, may be subject to the acquisition of rights vis-à-vis third parties. Therefore, the encrypted data may under no circumstances be the subject of any use by the recipient of the document without the prior acquisition of the necessary rights directly from the third party holders of these rights. Furthermore, the recipient of this document is aware and accepts that Covéa Finance will in no way be responsible for any use made of said encrypted data and will alone assume all the consequences vis-à-vis third parties who hold the rights associated with this data. "Use" is understood as, and without limitation, the manipulation of encrypted data, distribution, redistribution, integration into an information system or into documents of all types.