This is not the reopening that many had predicted – or even close. There have been some dire predictions for the ultimate outcome, up to and including the full collapse of the Chinese government and economy.  This may be stretching credibility, but many economists are finding it increasingly difficult to make a good case for Chinese growth.

But has this negativity gone too far? When assessing the recent data, it is worth noting that most figures are still positive even if they are below expectations. Retail sales were up 2.5%, while industrial production rose 3.7%. The gap between expectation and reality may reveal more about the difficulty of forecasting in such a vast country than it does about the Chinese economy.

Equally, it is worth noting that while the country opened up in late 2022, it was still struggling with Covid cases for some time afterwards. This will have knocked confidence and it is only likely to re-emerge gradually. But Chinese consumers have high savings and strong income growth, which should be supportive in the longer-term.

The Central Bank is also acting to shore up growth. It unexpectedly cut key policy rates for the second time in three months in mid-August. This suggests policymakers are sufficiently worried to take action and should pave the way for a cut in China’s lending benchmark loan prime rate in the coming weeks. Early action may be able to prevent business and consumer confidence flagging and stimulate the economy. 

Even if economic growth revives, it may take even more to renew confidence in the region’s stock markets. The average China investment trust is down 12% for the year to date, having dropped 16% in 2022 and 10.7% in 2021. These are uncomfortable losses and will do little to draw investors to the sector. Many investors now consider China to be largely uninvestable – too much political baggage and too many unknowns.

Nevertheless, the region’s stock markets are cheap by almost any measure. Historically, these periods of weakness have tended to be followed by very strong periods of growth. It requires considerable bravery, but the bold contrarian might want to take a chance.