The Chinese economy is stabilising
But significant doubts linger about President Xi Jinping’s commitment to private Enterprise
Martin Wolf
Is the Chinese economy recovering from its slowdown at the end of last year? “Yes”, say Gavyn Davies, Goldman Sachs and many others. During my recent visit to Shanghai and Beijing, a number of economists and private businessmen also indicated growing optimism about China’s economic prospects. Why do they think this and are they likely to be right?
China has long been the fastest-growing of the world’s three largest economies — the US, the eurozone and China itself. This is so whether one believes in the official numbers for China’s growth, or is somewhat sceptical about them. Given its economic dynamism and size, when China sneezes, the world economy catches a cold.
That was happening at the end of last year. According to Fulcrum’s “nowcasts”, cited by Mr Davies, growth fell to an annualised rate of 4 per cent in December 2018. This, he adds, “triggered much of the slowdown in global growth, especially in the trade and manufacturing sectors”. Behind this slowdown, it is argued, were the tightening of domestic credit, in an effort to halt the leveraging of the economy during the previous 10 years, and the impact on confidence of the trade war with the US.
Now, things look better. Indeed, I was surprised by how cheerful people I met were, especially in Shanghai, China’s financial capital. This greater optimism seems to be in line with the evidence for early 2019. Fulcrum “nowcasts” show recent growth rates in line with the government’s target of 6-6.5 per cent for the year. Similarly, Goldman Sachs has economic growth up to 5.8 per cent in February.
One reason for renewed optimism is the belief that a trade deal with the US is imminent. Another is the loosening of macroeconomic policy. This includes a reform of the value added tax expected to reduce the tax burden by Rmb2tn (nearly $300bn) annually. In a report on the work of the government, delivered in March 2019 at the National People’s Congress, premier Li Keqiang stated: “We will reform and refine monetary and credit supply mechanisms, and employ . . . a combination of quantitative and pricing approaches . . . to guide financial institutions in increasing credit supply and bringing down the cost of borrowing”. This could be important.
Of even greater importance, insisted some of those I met, is renewed official enthusiasm for the private sector. In a speech given in December 2018, President Xi Jinping not only paid tribute to Deng Xiaoping, author of China’s policy of “reform and opening up”, but promised to support the private sector. In his report, Mr Li referred to the private activities 20 times. He stressed the need to “ease funding shortages faced by private enterprises”, “encourage private actors to engage in innovation” and “attract more private capital into projects in key areas”.
Above all, the premier said: “We will follow the principle of competitive neutrality, so that when it comes to access to factors of production, market access and licenses, business operations, government procurement, public bidding and so on, enterprises under all forms of ownership will be treated on an equal footing.” In principle, this should include foreign owners.
The private sector has been the engine of China’s growth. If the authorities are determined to support it, this matters. Quite surprisingly to me, some Chinese people I met were even pleased that the US was pressuring China to liberalise the economy: the better the government had to treat foreign private business, the better it would also have to treat domestic private business. I wonder whether US negotiators understand the implications of letting private entrepreneurs off the state’s leash.
Yet we do also need to challenge this optimistic perspective on the present and future prospects of the Chinese economy.
First, it is unclear whether a deal on trade will be reached with the US. Even if such a deal is reached, the US seems determined to monitor Chinese behaviour, with the intention of imposing penalties (that is, tariffs) whenever China is judged to be backsliding. China seems unlikely to accept this demand. However, if such a deal were actually reached, the trade war would not be resolved, but rather institutionalised. Meanwhile, the EU is getting more hawkish on China’s trade and investment practices. A return to the relations of a few years ago is unlikely.
Second, controlling the growth of credit and debt, relative to the economy, while also promoting demand, is likely to remain a tricky, possibly impossible, balancing act. It would not be surprising if policymakers decided they had to tighten credit once again, with damaging effects on the economy. The obvious alternative would be active fiscal policy by central government. But the latter remains remarkably unwilling to do this.
Third, the attitude of Mr Xi to the private sector remains rather unclear, to put it mildly. He is surrounded by people who do believe in the essential role of the private sector. But does he? Most of the time, he seems to put rather greater faith in state-owned enterprises. So long as that is the case, it may be difficult to reignite, let alone sustain, confidence within the private sector.
Finally, there is a question about the true size of the Chinese economy. It may be growing substantially more slowly than official figures suggest. Alternatively, what is growing may not really be gross domestic product as understood elsewhere. Yet these are doubts for another occasion. The question here is whether the economy is recovering and, if so, durably? The answers are: “yes” and “perhaps”. The economy is recovering. But risks, notably over trade, lie ahead. Further periods of weakness are likely.
Longer term, many years into the future, our predictive modeling systems are suggesting this upside price swing is far from over. Our models suggest that price rotation will become a major factor over the next 12 to 15+ months – headed into the US Presidential election cycle of November 2020. Our models are suggesting that the second half of this year could present an incredible opportunity for skilled investors as price volatility/rotation provide bigger price swings. Additionally, our models suggest that early 2020 will provide even more opportunity for skilled traders who are able to understand the true price structure of the markets. Get ready, thing are about to get really interesting and if you are not following our research or a member of our services, you might want to think about joining soon.
We are focusing this research post on the NQ, ES and YM futures charts (Daily). We will include a longer-term YM chart near the end to highlight longer-term expectations. Let’s start with the NQ Daily chart.
The NQ Daily chart, below, highlights our ongoing research, shows the 2018 deep price rotational low and the incredible rally to new all-time highs recently. The most important aspect of this chart is the “Upside Target Zone” near the $8040 level and the fact that any rally to near these levels would represent an extended upside price rally near the upper range of the YELLOW price channel lines.
We believe any immediate price rotation may end near the $7500 level (between the two Fibonacci Target levels near $7400 & $7600) and could represent a pretty big increase in price volatility.

This ES Daily chart highlights the different in capabilities between the NQ and the ES. While the NQ is already pushing into fairly stronger new price highs, the ES is struggling to get above the Sept/Oct 2018 highs and this is because very strong resistance is found between $2,872 and $2,928. It is very likely that the price volatility will increase near these highs as price becomes more active in an attempt to break through this resistance. It is also very likely that a downside price rotation may happen where price attempts to retest the $2,835 level (or lower) before finally pushing into a bigger upside price trend. The Upside Target Zone highs are just below $3,000. Therefore, we believe any move above $2,960 could represent an exhaustion top type of price formation.

This YM chart is set up very similarly to the ES chart. Historical price highs are acting as a very strong price ceiling. While the NQ is already pushing into fairly stronger new price highs, the YM continues to struggle to get above the Sept/Oct 2018 highs and this is because very strong resistance is found between 25,750 and 27,000. Please take notice of the very narrow resistance channel (BOX) on this chart that highlights where we believe true price support/resistance is located. We believe it is likely that a downside price rotation may happen where price attempts to retest the $26,000 level (or lower) before finally pushing into a bigger upside price trend.

As you can tell from our recent posts and this research, we believe price volatility is about to skyrocket higher as price rotates downward. Our predictive modeling systems are suggesting that we are nearing the end of this current upside move where a downward price move will establish a new price base and allow price to, eventually, push much higher – well above current all-time high levels.
We’ve issued research posts regarding Presidential election cycles and how, generally, stock market prices decline 6 to 24 months before any US Presidential election. We believe this pattern will continue this year and we are warning our followers to be prepared at this stage of the game. No, it will not be a massive market crash like 2008-09. It will be a downside price rotation that will present incredible opportunities for skilled traders. If you want more of our specialized insight and analysis, then please visit www.TheTechnicalTraders.com to learn how we help our members find success.
Lastly, we’ve included this Weekly YM chart to show you just how volatile the markets are right now. Pay very close attention to the Fibonacci Target Levels that are being drawn on this chart. The downside target levels range from $16,000 to $21,060. The upside target levels range from $30,000 to $32,435. Top to bottom, The Fibonacci price modeling system is suggesting a total volatility range of over $16,000 for the YM Weekly chart and this usually suggests we are about to enter a period of bigger price rotation and much higher price volatility.

Right now, we suggest that you review some of our most recent posts to see how we’ve been calling these market moves, visit www.TheTechnicalTraders.com/FreeResearch/. It is important for all of our followers to understand the risks of being complacent right now. The markets are about to enter a period of about 24+ months where incredible opportunities will become evident for skilled traders. If you know what is going to happen, you can find opportunities everywhere. If not, you are going to be on the wrong side of some very big moves.