Here's why Asian stocks are rallying after really bad news from China

China's President Xi Jinping at a signing meeting with the Maldives President Abdulla Yameen at the Great Hall of the People in Beijing on December 7, 2017REUTERS/Fred Dufour/Pool​

  • The Chinese economy only grew 6.6% in 2018, its weakest annual performance since 1990.
  • Stock prices gain as hope floats that President Xi Jinping will take steps to stimulate the economy
  • Markets expect more tax cuts in China as Beijing tries to lift economic growth and sentiment
The Chinese economy reported its weakest annual performance since 1990 but Asian stocks are rallying with investors hoping that trade tension between the US and China will finally subside.

The world's second largest economy only grew by 6.6% in 2018 and the growth during last quarter hit 6.4%, levels that were last seen in early 2009 during the height of the global financial crisis.

Even as the world's second largest economy-- one which contributed to a third of the global economic growth in the last decade-- slowed down significantly, stock prices in Asia jumped up. India's benchmark index Sensex gained over 250 points. Shares in Tokyo, Hong Kong and Sydney surged after the S&P 500 Index finally rose above early December levels.

What's the cheer about?

So, why are stock market investors celebrating the bad news from Beijing? "To celebrate the 70th anniversary of the founding of the People's Republic of China in 2019, President Xi (Jinping) will still likely launch growth-supportive policies," according to Raymond Yeung, chief economist for Greater China at the Australia and New Zealand Banking Group, as reported by the CNBC.

"The major fiscal effort will be tax cuts this year," Haibin Zhu, JP Morgan's chief China economist, told the CNBC. Any effort from China to boost a slowing economy will boost sentiment as well as the risk appetite of global investors.

Not enough ammo for a trade war

The data has come at a time when both US, under President Donald Trump, and China are engaged in a high-stakes negotiation on bilateral trade between the world's two biggest economies.

The ongoing power play between Beijing and Washington has been a significant factor in denting China's economic progress. From Apple to car makers across the world are feeling the heat from the rising tensions between US and China.

Any adverse end to the ongoing talks could bring the Chinese economy to a screeching halt and it will severe repercussions for the global economy.

Can China take it anymore?

The uncertain outlook for Chinese exporters caused companies to delay investing and hiring and in some cases even to resort to layoffs - a practice that is often discouraged by China's stability-obsessed Communist Party rulers.

The official jobless rate ticked up to 4.9% month from 4.8% in November.

In the southern technology and export-manufacturing centre of Shenzhen, for instance, many private makers of electronics, textiles and auto parts furloughed workers more than two months before the Lunar New Year holiday, which begins in February, according to business owners and local officials.

The neighbouring city of Guangzhou saw growth slump to 6.5% last year - well short of the 7.5% annual target set by the city government - as trade tensions hit the city's manufacturing sector hard.

Believe it or not

Some economists and investors have said China's economy is far more anaemic than the government's 6.6% rate of expansion for 2018.

They said the government's move on Friday, just ahead of Monday's data release, to cut the 2017 growth rate to 6.8% from 6.9%, which they said provides a slightly lower base, giving a slight boost to the fresh 2018 data.

Silver linings

Monday's economic data also included some indications that this year's downturn may not be as severe as initially thought, reports the Guardian.

The country's industrial output rose 5.7%, while retail sales increased 8.2% in December, compared to a year earlier.

Chinese Vice Premier Liu He will visit the US on January 30-31 for the next round of trade talks with Washington.

US President Donald Trump said on Saturday there has been progress toward a trade deal with China, but denied that he was considering lifting tariffs.

(With BI India Bureau inputs)
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