Investing in China and Japan: The strengths and weaknesses of the two Asian giants

Financial markets/economy

Posted by MoneyController on 15.11.2023

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The news on US inflation also boosted Asian stock markets, which may have been helped by the planned meeting in San Francisco between Chinese Communist Party leader Xi Jinping and US President Joe Biden, which analysts saw as a sign of détente between the two countries.

China retail sales and industrial production rise

The economic data coming out of China is somewhat contradictory. On the one hand, as we read in an article by Evelyn Cheng on 'CNBC', retail sales did well, rising 7.6 per cent month-on-month, beating, for example, Reuters' forecast of 7 per cent growth. Industrial production also beat Reuters forecasts: +4.6% versus forecasts of +4.4%.

The deep crisis in the property market continues

On the other hand, Cheng continues, China's property sector continues to produce less than encouraging data. One of the latest such data points to a further 9.3% drop in investment in the sector in the first ten months of the year. Funds raised by property developers also fell sharply, by 13.8%. In another of his articles, Cheng quotes figures that give an idea of the scale of the crisis: according to Nomura, the number of unfinished but sold homes stands at 20 million units, of which 52% will be delivered late.

China's weaknesses

As Federico Rampini writes in the Corriere della Sera - echoing the convictions of the US elite - the weaknesses that structurally characterise China, in addition to the aforementioned real estate market, are the reduction in investment capital, the excessively low growth in consumption and the high youth unemployment, which is now at 21% (the current unemployment rate of 5% does not include the youngest segments of the population).

The global and central role of the Chinese economy

Although China is burdened with additional problems such as debt and an ageing population, Rampini points out that in 2023, trade between China and emerging markets will exceed the volume of trade between the United States, Europe and Japan: China cannot therefore be underestimated as a global economic hub, and reports of its economic collapse should perhaps be downplayed.  

Japan's Preliminary GDP Shrinks in Q3

Meanwhile, Japan's preliminary Q3 GDP growth was negative: -2.1% y/y and -0.5% m/m. As Clement Tan writes on CNBC, these figures (largely due to rising inventories) alternate with periods of growth and seem to be part of a volatile dynamic in the Japanese economy since the outbreak of the pandemic. Of course, as Tan points out, the economic data now seems to be further complicating the outlook for Japanese monetary policy.

Read also

US inflation falls, pushing stock markets higher around the world

Chinese property, never-ending crisis: Country Garden defaults on dollar bonds

Japanese equities: ETFs or active funds?

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