This note looks at the outlook for China in view of its recent move to start tightening monetary policy.
The key points are as follows:
- China has embarked on monetary tightening and, with its economy growing strongly and worries that imbalances will build, further tightening is likely.
- Although this will likely cause bouts of volatility in Chinese shares and global financial markets, China is a long way from undertaking a draconian tightening designed to crunch growth. We continue to expect Chinese GDP growth of around 10% this year.
- As a result, Chinese tightening is unlikely to threaten the rising trend in shares this year, though it will, along with tightening elsewhere, result in a more volatile ride.
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