David Roche, a veteran investment strategist, said on Monday that monetary policy in China will ease as the government focuses on stability and common prosperity.
The Chinese government wants to generate moderate wealth for all in response to the widening rich-poor gap in the country.
In order to achieve that, Beijing is likely to cut lending rates further, inject money into banks to lend to small and medium enterprises as well as ensure that troubled property developers deliver on their projects, according to Independent Strategy.
The economic figures are bad, and that is bad for the Communist Party, so I would expect more of those measures.
The government will prioritize stability.
The kind of ideological common prosperity themes will not be put off.
Consumers will buy less and sellers will make less money if products can't be shipped or if shipping costs are too high.
He said that the effect of all that happening is that you lose confidence and spend less. Supply and demand disruptions are the same thing.
A big economic consequence can be caused by small disruptions such as coronaviruses infections.
He said that China's decision to lock down cities and ports because of a few reported Covid cases would have a knock-on effect on shipping containers moving from China to the United States.
He said that that impacts the whole supply chain.
Disruptions will continue until the second half of the year, according to trade credit insurer Euler Hermes.
By nature, supply-side shocks cause output and demand to fall, while causing prices to rise because of scarcity and higher shipping costs.
How good the central banks are in fighting it is the question. He said that the effects of supply-side shocks on expectations are important to whether this sort of shock becomes a general macroeconomic environment.
Evelyn Cheng was a contributor to the report.
