China’s economy may rebound soon, but longer-term growth will be ‘deeply difficult’

China had previously “navigated” economically as other countries struggled, but the world’s second-largest economy could have a tough road ahead, a strategist says.

“China has reached that level of development where many emerging markets generally find things to get more difficult,” said Mark Jolley of CCB International Securities.

He pointed to the trend of de-globalization, friction between the United States and China as well as the weakness of the global economy.

“On both sides of the Pacific, we hear a lot of wishful thinking that decoupling will help rather than hurt domestic growth. We disagree,” Ethan Harris wrote in a BofA Global Research note released Friday.

“Decoupling is a negative-sum game that hurts both countries. It means giving up comparative advantage and locking up capital,” the Bank of America Securities global economist added, though he acknowledged it could be “strong geopolitical and reliability reasons” for decoupling. .

Beyond the short-term rebound in growth, we see continued downward pressure on potential or trend growth in China.

Ethan Harris

Global Economist, Bank of America Securities

Domestically, Beijing must also manage its struggling property sector, Jolley told CNBC’s “Squawk Box Asia” on Monday.

“I certainly think China’s economic outlook over the next five to 10 years is deeply challenging,” he said.

“In the past, China kept sailing while everyone else struggled. Now China is probably going to be more like other countries,” he added.

BofA’s Harris said “adverse demographics” and the limitations of an export- or construction-oriented economy are challenges for Beijing.

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“Beyond the near-term rebound in growth, we see continued downward pressure on potential or trend growth in China,” he said, pointing to a return to “more of a command economy” and concerns that are hampering the flow of foreign investment.

“Bright Spot”

That said, Jun Bei Liu, portfolio manager at Tribeca Investment Partners, said 2023 will be a “pretty good year” for China as the economy is expected to lift strict Covid measures and domestic consumption to rebound.

“Compared to the rest of the world [where the] consumer is going to struggle in the next 12 months, China is going to be the bright spot,” she told CNBC’s “Squawk Box Asia.”

The sell-off in Chinese tech stocks presents a “huge” opportunity, she said, while warning that investors should be mindful of changes in income redistribution policy.

“You just have to be very selective in what you choose – focus on companies and sectors that [are] not so political, because that’s probably where most of the risk is,” she said.

– CNBC’s Evelyn Cheng contributed to this report.

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