China’s growth slowdown and regulatory crackdown – what does it mean for China’s growth outlook?

August 26th 2021

chinas growth mu main image

Key Points

  • China is seeing a regulatory crackdown on tech companies, the property sector and inequality aimed at supporting its middle class.
  • The shift to “bigger government” likely has further to run.
  • Chinese economic growth is likely to be soft this half but policy easing and maybe a pause in some regulatory moves should allow a rebound next year.
  • This will be positive for commodity prices and Australia




After surging 65% from its coronavirus low in March 2020 to its high in February this year, the Chinese share market saw an 18% decline into July. This reflected concerns about policy tightening, the economic outlook and a regulatory crackdown on a range of industries, notably tech stocks and steel production, with the latter contributing to a plunge in the iron ore price. So, what’s going on? How serious is the regulatory crackdown? What does it mean for China’s economic outlook and shares?


Regulatory crackdown

China’s regulatory crackdown has impacted multiple industries including internet stocks (like Alibaba & the Ant Group, Tencent and Didi with various anti-monopoly, financial regulation and cyber security investigations or scrutiny), private tutoring companies, property and online insurance. It has also recently restricted steel exports and announced a plan for “common prosperity.” The latter is focused on growing the middle class, redistributing income, maintaining a large role for public ownership, and guiding public opinion on common prosperity.


What’s driving the regulatory crackdown?

China’s policy moves reflect a variety of drivers, in particular:


China’s policy moves towards greater government involvement in the economy are not inconsistent with trends in western countries since the GFC and the observation that the political pendulum is swinging back to the left after swinging strongly to the right with economic rationalist policies in the 1980s-2000s. Under President Biden the US will end up with a bigger government sector, while the last Australian Budget projected Federal spending stabilising at a level of GDP well above pre-pandemic norms. Western countries are also considering regulatory action against big tech. But of course, China is a communist country and a one-party state so its swing to the left seems more noticeable, particularly at time of geopolitical tensions with western countries.


What are the risks?

China’s reforms over the last decade have had mixed success – including the focus on de-leveraging and the introduction of a national property tax. However, Chinese policy campaigns often go on for several years so it’s too early to say that it’s over. The shift towards free-market capitalism under Deng ran for 30 years or so, meaning the current shift towards big government (and more Communist Party control) could run for decades (as it could in western countries). The reforms face four main risks:


China’s growth outlook

This brings us to concerns about slowing growth in the near term. After rebounding sharply from the lockdown last year Chinese economic data has slowed. Business conditions indicators (or PMIs) have been trending down.


chinas growth mu inline 1
Source: Bloomberg, AMP Capital


And industrial production, retail sales, investment, exports, imports & credit growth all slowed more than expected in July.


chinas growth mu inline 2
Source: Thomson Reuters, AMP Capital


The slowing in annual growth measures partly reflects the drop off of the base effect boost as the 2020 lockdown slump drops out, but it has gone a bit beyond that as a result of floods, policy tightening after last year’s easing, increased covid restrictions due to a new Delta outbreak and carbon pollution reduction measures. As a result, September quarter growth is likely to be weak. A slowing in covid cases in the last two weeks may allow some easing of restrictions but they are likely to remain to some degree ahead of the Winter Olympics in February 2022.


chinas growth mu inline 3
Source:, AMP Capital


More fundamentally though the July Politburo meeting suggested some monetary and fiscal easing ahead and that the regulatory crackdown may go through a brief pause given the growth slowdown. In terms of the latter there has also been some indication of a slowing in anti-carbon pollution measures. As a result, growth is likely to accelerate again in 2022. After slowing to 4% year on year in the December quarter this year (from 7.9%yoy in the June quarter), growth is expected to accelerate to 6.5%yoy through 2022. Longer-term the trend is likely to be down in China’s growth rate as its period of rapid industrialisation and productivity growth is behind it.


The Chinese share market

The chart below relates to monthly data and so misses the extremes, but Chinese shares saw an 18% decline from their February high to their recent low. Valuations are not particularly onerous and will likely benefit from anticipation of stronger growth next year. However, regulatory uncertainty and geopolitical risks may constrain it on a medium-term view.


chinas growth mu inline 4
Source: Thomson Reuters; AMP Capital


Implications for Australia

A slowdown in China’s long-term growth rate and trade tensions impacting multiple Australian exports to China mean that the big boost to Australian exports from trade with China may be behind us. Over the last year, it was offset by the surge in the iron price to over $US220 a tonne, but from its May high it fell by over 40% to its low last week, albeit to a still very high level. However, commodity prices don’t go in a straight line and some slowing in Chinese anti-carbon policies may see some stabilisation/short-term improvement in the iron ore price and it has had a bit of a bounce this week. Commodity prices generally should benefit from an upswing in Chinese growth next year, which should benefit Australian export earnings.


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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.