At the ongoing 22nd JPMorgan Global China Summit in Shanghai, which began on May 21 and brings together over 2,900 participants from more than 1,300 companies across over 35 countries and regions, Zhu Feng, Chief Economist for China and Head of China Economic Research at JPMorgan Chase, shared his perspectives during a thematic exchange session.
Zhu Feng expressed the view that the Chinese economy possesses considerable resilience, with manufacturing and exports showing strong momentum, which contributed to favorable first-quarter GDP performance. He noted that the Chinese economy will continue to face numerous challenges going forward, with the possibility of these challenges intensifying in the near term, necessitating prudent management.
During the exchange, Zhu Feng also mentioned that foreign investor confidence and interest in the Chinese market are recovering. He emphasized that the core driver of capital flows ultimately hinges on real returns, which form the fundamental basis for capital allocation. From this perspective, foreign capital is likely to continue favoring an increased allocation to Chinese assets, at least in the short term.
**Chinese Economy's Start to the Year Exceeds Expectations** Zhu Feng first discussed his outlook on the Chinese economy. He believes the economic performance since the beginning of the year has been stronger than previously anticipated, particularly in the first quarter, where actual GDP growth reached 5% and the quarter-on-quarter annualized growth rate hit 6.7%, signaling a very positive trend.
Several highlights are noteworthy: Firstly, regarding exports, the performance since the start of the year has been very robust, reflecting the strong international competitiveness of China's export-related industries.
Secondly, in terms of infrastructure investment, data from January to February indicates that China's high-level infrastructure, often referred to as "effective investment," performed well. Infrastructure and exports jointly drove economic growth in the first quarter.
He also mentioned that on the consumption front, domestic demand data remains not particularly strong but has shown some degree of recovery, largely linked to the Spring Festival and May Day holidays. Tourism, cultural consumption, and travel-related spending have provided some support to overall consumption.
Regarding the property sector, there have been some positive signs recently, with recovery trends observable particularly in first-tier cities and a few second-tier cities. However, a comprehensive recovery in the property market will still require some time.
**Future Challenges and Response Assessments** Zhu Feng also highlighted potential external risks and challenges the economy may face. Among these, conflicts arising from the Middle East situation have significantly impacted the global economy. Simultaneously, trade frictions and tariff uncertainties over the past year or two may pose some tests for domestic economic growth in the second quarter.
However, this is unlikely to alter the scenario of China's manufacturing exports maintaining strong resilience. Key reasons include: China's manufacturing sector boasts strong competitiveness, sufficient capacity, and a complete industrial chain, providing significant support for exports; oil and gas constitute a relatively low proportion in China's energy mix, and import sources are diversified, not solely reliant on the Middle East; from a cost perspective, while China's labor costs are rising, the rate of increase is lower than in many other countries. Compared to more developed manufacturing nations, China's manufacturing exports still hold certain advantages.
Zhu Feng also emphasized challenges related to inflation and trade structure. He believes the previously concerning situation of persistently low inflation levels, even nearing zero, has shown improvement following changes in the Middle East situation. Since March this year, the Producer Price Index (PPI) has continued to recover, rising to 2.8% last month, which is a very positive signal. The rise in PPI will, to some extent, help China gradually exit the low-inflation environment and move closer to the 2% target, step by step alleviating the low-inflation predicament.
From a trade structure perspective, China's export composition has been undergoing positive changes recently: competitiveness in high-end manufacturing continues to strengthen, while the export share of low-end consumer goods and some industries with overcapacity is shrinking; exports in high-tech industries are showing significant growth. Industrial upgrading remains a crucial development direction. Regarding export destinations, the trend towards diversification is quite evident.
**Where Will Future Growth Momentum Come From?** Looking ahead, Zhu Feng mentioned that the main issues facing the Chinese economy include:
First, how to achieve better and faster development under the premise of security. Zhu Feng believes the most pressing issue currently is how to boost domestic demand. Specific measures include establishing a robust, nationally unified large market to enhance the scale of the economy's consumption, investment, and manufacturing capabilities; and actively promoting effective investment, particularly in infrastructure serving high-end manufacturing and new quality productive forces, such as computing power.
Second, increasing residents' disposable income to stimulate consumption. Zhu Feng considers the most important factors affecting consumption to be household wealth, income levels, and employment prospects. Whether the real estate industry can transition to positive growth swiftly is crucial for consumption recovery. If improvements can be made in this area, one can be more optimistic about future Chinese consumption performance.
Third, accelerating economic transformation driven by technological innovation. The Chinese economy is shifting from investment-driven to innovation-driven growth, a process that will require considerable time. During this transition, economic growth may slow down periodically, but this is precisely about accumulating momentum for higher-quality growth in the future.
**Monetary Policy Will Be Independently Decided** When asked about his views on the RMB exchange rate, Zhu Feng stated that he cannot predict the specific operations of the People's Bank of China, but his current view is that as long as the RMB appreciation pace is not too rapid, the central bank's stance is likely to be relatively accommodative.
Zhu Feng also indicated that the future trend might involve stable, modest, and gradual appreciation, barring special circumstances such as stagflation in the United States or Europe.
Furthermore, although overseas views suggest the probability of a Fed rate hike by year-end is increasing, China's monetary policy has consistently been formulated based on domestic economic and inflation conditions and will not follow the Federal Reserve.
The Federal Reserve's own policy orientation will remain data-driven. Currently, most major global central banks are in a wait-and-see mode because the intensity and duration of this round of energy shocks remain unclear, yet the latter is crucial for policy judgment.
He anticipates that if overseas stagflation risks further expand, the possibility of a Fed rate hike is real. Should US inflation data continue to rise persistently, pressure on the Fed to hike rates would increase significantly.
**Foreign Investor Confidence in Chinese Market is Recovering** Zhu Feng also revealed that based on his current observations, foreign investor attention and interest in the Chinese market are continuously recovering.
He stated that recently, a noticeable shift in overseas investors' perception of China can be felt—transitioning from a cautious attitude during the previous period of geopolitical competition back to the judgment that "China is an investable market." Global capital allocation is tilting towards China, which is also somewhat related to the relative decline in attractiveness of some other overseas markets.
He also mentioned that if the Federal Reserve raises interest rates in the future, it would certainly widen the interest rate differential in favor of the US dollar, benefiting dollar-denominated assets, and might temporarily affect the pace of foreign capital inflows. However, the core of capital flows ultimately depends on real returns—that is, the potential for productivity improvement and profit growth across different industries and economies. This is the fundamental driver of capital allocation.
From this perspective, at least in the short term, foreign capital is still inclined to increase its allocation to Chinese assets.
Market risks exist, and investment requires caution. This content does not constitute personal investment advice and does not consider individual users' specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein suit their particular circumstances. Investments made accordingly are at the investor's own responsibility.
Comments