The latest data released on manufacturing and services PMIs indices show that the Chinese economy remains on a strong growth path. The manufacturing PMI index was 51.9 in March, higher than 50.6 of February, a month that also coincided with the middle of the Chinese New Year celebrations. Μacroeconomic indicators also showed an increase in exports.
The services index surprisingly climbed to 56.3 in March compared to 51.4 in February. This rise is mainly due to the construction sector and this shows that the implementation of the investment plan on infrastructure is strictly observed.
In our estimation, in the short term there are endogenous and exogenous risks that could create a problem. Among these risks we enlist the following:
1. The fact that Europe remains in a state of severe restrictions means that it will delay any comeback of the demand for Chinese products and this will have an impact on Chinese exports.
2. US-China trade relations are unlikely to improve significantly, and it is also uncertain whether the new US administration will decide to resolve the issue rapidly.
3. As long as trade relations are not smoothed out, Chinese companies will face significant shortages, restrictions on product availability and supply of raw materials, as well as bans on the use of rights and distribution of products. All of this has already affected the financial results of the big Chinese technological giants and have put a lot of pressure on their stocks.
China will try to mitigate all these risks through strong domestic demand growth and huge investments in infrastructure and R&D. In addition, although interest rates remain low and support the recovery effort, there are estimates that within 2021 there could be a further reduction to reduce the financial risk even more due to excessive leverage of the system.