(MENAFN- Asia Times) The large waves of foreign capital suddenly racing China's way are raising a vital question for 2024: is sentiment toward Asia's biggest Economy swinging back toward positivity?
Investors will be and already are debating this very question now that China has racked up a nearly six-fold increase in foreign buying of bonds in November from October – 251 billion yuan (US$33 billion) of inflows.
But here's the better question:
What can Chinese leader Xi Jinping do to lean into the trend and broaden it?
The obvious answer is for the People's bank of China to keep doing what it's done in recent months. Governor Pan Gongsheng's team has been a study in restraint as other top central banks took decidedly activist approaches to 2023's economic and financial uncertainties.
Despite the wreckage of Xi's Covid lockdowns and China's property crisis this year, the PBOC only cut official rates twice. It prioritized targeted liquidity to money markets to boost growth.
Granted, Chinese borrowing costs are already at record lows. But Pan's determination to put yuan stability ahead of Japan-like bursts of extreme stimulus – even as deflation stalked the economy – is now paying dividends in the form of big bond inflows.
Of course, Team Xi displayed its own restraint in 2023, foregoing the massive stimulus jolts investors everywhere expecting.
But as 2024 arrives, it is high time for Xi's government to accelerate moves to build more international and robust capital markets. It is equally important to internalize and heed warnings from Moody's Investors Service .
On December 5, Moody's downgraded Beijing's credit outlook to negative from stable, citing“structurally and persistently lower medium-term economic growth” and a cratering property sector.
The good news, as Moody's pointed out, is the“economy's vast size and robust, albeit slowing, potential growth rate, support its high shock-absorption capacity.” The bad news is that headwinds hitting cash-strapped local governments and state-owned enterprises are“posing broad downside risks to China's fiscal, economic and institutional strength.”
China wasn't happy. The Finance Ministry acknowledged it was“disappointed” with Moody's outlook cut.“China's economy,” the ministry retorted,“is shifting to high-quality development, new drivers of China's economic growth are taking effect and China has the ability to continue to deepen reforms and respond to risks and challenges.”
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