CNBC is reporting that economists at Citi have said in a note to clients that the unfolding banking crisis in the US and Europe, which shattered the confidence of investors in the financial system in the West, could point to China as a “relative safe haven” from the storm that is approaching.
Citi noted that as it finally emerges from its Covid lockdown, China’s economy is expected to experience accelerated expansion this year, giving the nation a “hedge” for growth as the American and European economies appear heading toward contraction and recession, which will only further impact the financial sector’s stability in the West, according to the note.
The team behind the note, led by Citi’s Chief China economist Xiangrong Yu, reportedly stated, “We have long been discussing our view that China can be a major growth hedge this year – if anything, recent global banking stresses perhaps have strengthened this thesis.,”
The economists went on to argue, “China could at least be a relative ‘safe haven’ given its growth premium, financial soundness, policy discipline and the new political economy cycle.”
They specifically cited the People’s Bank Of China (PBoC) cutting its reserve requirement ratio, adding the move displayed, “reassurance of policy support amid global volatilities.”
Last week the central bank cut the ratio for almost all banks by 25 basis points, in a move widely seen as designed to ensure liquidity in the banking system.
The analysts wrote, “Perhaps taking lessons from what the US has been going through in recent years, the PBoC has been prudent in easing even during the pandemic era and may quickly switch to a wait-and-see mode once growth is back on track.”
They also pointed to the restructuring of the Chinese government earlier this month as part of an effort to ease financial risks.
CNBC also reported that as soon as September, Citi expects to see the onshore yuan strengthening against the dollar, bringing the renminbi to its strongest position since April of 2022.
Citi concluded, “With the unintended and undesirable from aggressive interest rate hikes surfacing abroad, capital inflows into China could resume after they reopen trade if the recovery thesis plays out and political rerating is steadily ongoing.”
