The Chinese growth story has thrilled and amazed the world so no wonder everybody is wondering when it will finally come to an end.
The self-proclaimed “peaceful rise” of the world’s second-largest economy has underpinned everything from global deflation, London house prices and the commodity super-cycle to sales of Bordeaux and Burberry’s bottom line.
Politically, it has led to the rise of state capitalism, a model many developing countries now prefer over the Western version.
China has also excited the attentions of President Donald Trump, and the world now awaits the delightful prospect of a global trade war between the world’s two biggest economies.
As we enter the year of the Rooster, what will the Chinese new year bring?
Analysts have been warning of a Chinese crash for years but every time it seems imminent the government steps in with more stimulus and easy credit. Sounds familiar? The country is a turbo-charged version of the West, facing similar debt and demographic challenges.
Latest figures show its economy grew faster than expected at 6.8% in the fourth quarter, but even Prime Minister Li Keqiang doesn’t trust that number, admitting that he looks at demand for loans, rail cargo traffic and electricity consumption instead.
As AJ Bell has pointed out, all three indicators are rattling along quite comfortably at the moment.
The problem is that the debt-to-GDP ratio is travelling at an even faster lick, now topping 250%.
Gary Greenberg, head of emerging markets at Hermes Investment Management, reckons it could hit 350% by 2020.
The Chinese authorities have fired up stock market and housing bubbles in a bid to keep the GDP narrative alive, but this cannot go on forever. Most analysts give it another year.
War-war or jaw-jaw?
Trouble could strike sooner if the US Federal Reserve hikes interest rates several times this year, which could trigger more outflows from China.
The country will be hit hard if Trump follows through on his protectionist threats (and he has wasted no time offending Mexico), given its annual $300 billion trade surplus with the US. Capital Economics has estimated it could knock 3% off China’s GDP.
However a 45% tax on Chinese imports will force up prices of laptops, fridges, smartphones and other consumer items, denting the purchasing power of US voters. Trump won’t want to catch the blame for that.
US company supply chains will also be punished while China may retaliate by reducing access to its 1.3 billion customers.
These fears have dragged on the Chinese stock market lately, but it could rebound if Trump strikes one of his deals.
So is now a good time to invest in China? BlackRock says the most recent quarterly data shows an economy gaining in strength, with improving trade, producer prices, construction activity and retail sales.
It reckons this will persist in 2017, boosting industrial profits growth and company earnings. This would be something to crow about.
Against this, you have to set the Chinese debt bubble, shadow banking system and President Trump. To me, China looks more risky than ever, but the country has amazed us before.