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China’s economy faces a bumpy ride even if ‘trade peace’ breaks out soon

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Sometimes, it seems like financial markets can only focus on one big issue at a time. For much of last year, markets were mainly worried about the broad-based economic slowdown in China, which was a result of policymakers’ efforts to slowly wean the economy off its debt dependence.

This hit emerging Asia equity markets hard, and they fell by more than 20 per cent in the first half of 2018. Then, towards the end of the year, markets turned their attention to worries about slowing growth and rising interest rates in the US economy. This drove a ferocious sell-off in global developed market equities. During this time, emerging and Asian equities actually outperformed most other regions, as worries about the Chinese economy faded somewhat into the background.

Since the turn of the year, some calm has returned to developed equity markets and the focus of worries has once again shifted back to China. Recent economic news from China has been disappointing to markets in terms of both hard data and sentiment. The weakness is likely to continue for the next few months due to tariff shocks and a probable property........

© South China Morning Post