No reason for investors in China to panic

Under the influence of multiple factors, including the COVID-19 pandemic, the Ukraine conflict and the Federal Reserve’s raising of interest rates, the market has shown an irrational state, reflecting the pessimism that has accumulated because of the seemingly endless uncertainty.

The Fed’s main goal is price stability, and the tightening expectations of the market have led to a strong dollar effect that could put more countries under inflationary pressure. China is one of the few economies in the world with stable prices.

In addition to its independent pricing power for grain and coal, China also adheres to its own monetary policy, instead of adopting extremely loose policies like the United States. At present, the depreciation of the renminbi exchange rate is a normal shortterm market phenomenon, which is not sustainable. At the same time, it also reflects the increase of exchange rate flexibility, which is conducive to maintaining export competitiveness.

Investors in China don’t need to panic because of a change in Fed policy. Whether it is fiscal policy or monetary policy, China still has a lot of room to support its economy, which is completely different from the US. Moreover, China’s capital account is still not fully open, and the withdrawal of some foreign capital from the capital market is just a normal market transaction, a small proportion of the huge stock.

Globally, China is one of the most competitive economies. The core of China’s economic work has been to provide a variety of favorable policies, financial and market conditions for the transformation and upgrading of its manufacturing industry. The supply chain and industrial chain have obvious selfstrengthening effect, and the continuous strengthening of innovation capacity has further consolidated the global competitiveness of China’s manufacturing industry.

In the first two months of this year, the actual use of foreign capital in China amounted to $37.86 billion, up 45.2 percent year-on-year. During the same period, US and German investment in China increased by 36.4 percent and 109.1 percent respectively.

So although the volatile global political and economic landscape creates fertile ground for pessimism, Chinese investors should be rational and realize there is no need to panic.