Over the last six months, the S&P 500 has outperformed China’s Shenzhen 300 Index by nearly 30%. The yuan is also down more than 8% against the dollar.
This chart begins on March 23, the day after the Trump administration announced tariffs on $60 billion of imports from China.
Since then, the administration has announced two more rounds of potential tariffs against China, one in August for $200 billion and another in September for an additional $267 billion.
Ongoing trade talks notwithstanding, these threats of tariffs put China in a difficult position. For the last 25 years, China has become increasingly reliant on the US as a consumer of its exports. In just the last five years alone, China’s 12-month trade surplus with the US has increased 43% to more than $300 billion.
To make matters worse, China’s communist President Xi Jinping (who recently removed presidential term limits) appears to be tightening his grip on the centrally controlled economy, making it increasingly less friendly to business and entrepreneurial activity. Jack Ma’s recent announcement of his intention to step down from his role as executive chairman of Alibaba, China’s largest company, may be no coincidence. As noted recently in the Wall Street Journal , “Mr. Ma’s move could be a sign of the changing business environment in China, Mr. Clark noted, as China’s government exerts greater control over technology companies”.
These changes in China’s economy from within and from without, combined with China’s size, are not insignificant; they have the potential to fundamentally alter the global economic landscape and global capital markets with it.
1Corrigan, J. & Lin, L. (2018). “Alibaba’s Jack Ma to Step Down as Executive Chairman”
Wall Street Journal, 8 September. Available at https://www.wsj.com/articles/alibabas-jack-ma-to-step-down-as-executive-chairman-1536381356?mod=article_inline (Accessed 11 September 2018).
Unless otherwise noted, data is sourced from Bloomberg.
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