China's Global Importance
Despite seemingly a multitude of worries over the potential for a slowdown in US growth, the growing signs of weakness in Japan, the arrival of an industrial recession in Europe and the uncertainty over BREXIT, financial markets have arguably performed remarkably well over recent months. We would argue that the primary positive driver of financial markets over the last few months has been events within China.
Although China's economy is clearly weak in growth terms – as commodity producers, German car and capital goods producers, Japanese exporters and of course the New Zealand dairy sector can each testify – the fact remains that the desire on the part of Chinese private sector to diversify into non-RMB denominated assets such as property in North America, Australasia and increasingly Europe, bank deposits (chiefly in the US), hoarding commodities, and even direct investments into companies abroad has resulted in what we estimate to be perhaps as much as a US$200 billion per month flow of capital into financial markets.
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