Turbulence in the global asset price has undoubtedly brought challenges to the Chinese economy and the financial market, but at the same time, also generates a series of favorable factors to the country that should not be ignored.
Since the start of 2016, the international asset market has witnessed a continuous sharp fluctuation, Europe, Japan and United States have seen a stock market "roller coaster," and oil markets are still seeking a bottom in a long-short game.
The price turbulence has surely presented challenges to China, as the world is now closely inter-connected. Meanwhile, one should view the issue from a dialectic perspective, attaching importance to the risks while also paying attention to the positive factors.
BENEFITS FROM COMMODITY PRICE FALL
The first few days of 2016 saw continued decline of prices of staple commodities on international markets such as crude oil and iron ore, and oil prices even hit a 12-year record low.
The drop in commodity prices caused losses for exporting countries, and some industries in China were also negatively impacted. However, the overall advantages outweighed the disadvantages for China.
According to data released by the Ministry of Commerce, China saved 188 billion U.S. dollars last year in foreign trade costs from the import of a basket of 10 staple commodities, including oil, soybeans and natural gas.
This largely cut the production cost for domestic enterprises, improved effectiveness, and benefited companies whose profits were squeezed due to low producer prices.
Analysts noted that the favorable factors have infiltrated deep into the whole economy, holding down and stabilizing prices in various aspects such as residential heating and factory raw materials.
For resource processing companies, lower pricing has allowed them to expand long-term reserves at lower cost. The import volume of crude oil, iron ore, copper concentrate and soybean last year all hit historical records.
In addition, the steep fall of commodity prices helped curb inflation, and provided decision makers with bigger monetary policy space to support economic growth.
There is still room for China to lower interest rates in the future, and the family consumption capacity has been enhanced thanks to low commodity prices, said Louis Kujis, former Senior Economist in the World Bank's China office.
YUAN'S CHARM IN CURRENCY GAME
The U.S. Federal Reserve's rate hike at the end of last year highlighted the monetary policy divergence between major global economies,stimulating more frequent cross-border capital transaction.
Under impacts of both domestic and international factors, the Chinese yuan's exchange rate, which was in steady rise over the past few years, recently showed fluctuations. However, the yuan is overall still strongly appealing to international investors.
From the aspect of the exchange rate, the yuan's value is largely stable, compared with the substantially depreciated currencies of some economies.
Judged by the appreciation of the yuan against major international currencies in the past decade, the devaluation of the yuan, especially against the U.S. dollar, in the second half of 2015 should be regarded as a result of normal adjustment and fluctuation under the market pricing mechanism, said Qian Jun, associated director of China Academy of Financial Research.
Zhou Xiaochuan, governor of the People's Bank of China, China's central bank, said earlier this week that there is no basis for continued depreciation of the yuan and that China would not let market sentiment be dominated by speculative forces.
China will keep the yuan stable versus a basket of currencies while allowing greater volatility against the U.S. dollar, Zhou said.
From the aspect of the interest rate, developed economies remain in the environment of low interest rates or even negative interest rates, with a low return of gains from fixed-income investment products, while China's interest rate level is still attractive, and the yuan-dominated assets still possess considerable status in the calculation of international investors. For long-term investors, "configuring China" maintains a most important topic.
INVESTMENT OPPORTUNITIES IN CHINA AMID STOCK TURMOIL
The sharp fluctuation in the stock markets of Europe, Japan and the Untied States has led to noticeable crowding-out effects, prompting some of the capital to reflow to the Asian market, especially the Chinese mainland stock market, which has experienced significant adjustment.
The large volatility in developed economies showed that their markets, after hitting multiple record highs, are suffering from stamina fatigue.
The sharp drop in Chinese mainland stock market over the half-plus year, however, has created investment value for the market. The stock market rise for three consecutive days after the Spring Festival holiday season indicated that confidence in the Chinese capital market is coming back.
The growth quality of the Chinese economy has been improving though its growth rate has been slowing, and analysts emphasized that the momentum of structural reform has been stronger and stronger, which prompted the emergence of more "comparative advantages" of the Chinese mainland stock market in the global environment.
The rise in the volume and prices of emerging industry sectors, which includes the virtual and reality technology and smart device applications, showed that the new Chinese economy has aroused attention from and triggered pursuit by international and domestic investors.
