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China faces economic challenges similar to Japan’s lost decades, according to Macquarie, emphasizing the need for bold policy responses. Macquarie points out that Japan struggled to recover from its economic stagnation, relying heavily on investment and exports, resulting in overcapacities and declining returns. The bank highlights that China is facing a similar situation with high saving rates and a lack of consumption policies.
Both economies experienced disinflation and decreased returns, leading to cautious spending by households and businesses. While China has more policy flexibility due to its closed capital account, the underlying issues remain the same. Macquarie notes that China’s current measures, such as rate cuts and lower reserve requirements, may not be enough to stimulate demand for money.
The bank recommends significant actions such as reducing real estate risks and transferring local and state-owned enterprise debt to the central government. They also suggest implementing a China-wide universal basic income to stabilize local government finances. However, Macquarie criticizes the current reluctance to adopt these bold policies, stating that timidity and procrastination will not lead to consistent economic growth in China. Until substantial policy shifts occur, the bank predicts volatile trading opportunities in Chinese equities without sustainable returns.
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SOURCE
Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.
