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China's property sector is not a growth driver of the Chinese economy, but a growth passenger. China's fiscal system also created incentives for local governments to favor housing market development.
In the latest World Economic Outlook Report, the IMF said "the dangerous divergence in economic prospects across countries remains a major concern". While the IMF focused on the "vaccine divide" between developed and developing nations, there are other divergences at play.
China has not solved the unravelling crisis in its development/construction sector. The nation has moved through all the ‘natural' stages an economy goes through when implementing the free market capitalism model.
China announced a plethora of macro data last week where all but retail sales missed expectations. News on the populous country continued to spell doom and gloom. Investors are sitting up and realizing 'the bark is worse than the bite' on China matters.
Surging raw material prices, power shortages, a slowdown in the property sector and COVID-related constraints are likely to have impeded third-quarter economic growth.
U.S. lawmakers' deal on a short-term debt ceiling extension spurred a bullish run on stocks last week but the depressed Chinese equities rallied even more. Cheery macro data and developments are supporting the bullish narrative for Chinese stocks.
Chinese government has generally had some idea of how much risk Evergrande and other highly leveraged real estate companies pose since last year. Equity holders will most likely be wiped out, with holders of bond and wealth management products taking significant haircuts.
The impact of the policy remedy to China's property market excesses is spreading across global markets. But they would bounce hard on any evidence of a mitigation plan from Beijing.
FXI and ASHR track very similar companies.
Surging raw material prices and COVID-related constraints are likely to have impacted manufacturers, resulting in disappointing official manufacturing PMI data.