China’s depreciating currency coupled with slow growth after years of high-speed development have raised questions about the health of the world’s second-largest economy.
The slow growth spurred a dip in global markets, raising concerns as plunging share prices start to hit investors. Yesterday, Chinese shares closed lower despite a fresh rate cut by the central bank in a bid to calm stock markets after the past days’ turmoil.
The dramatic losses and volatility in China have shattered investor confidence and led to sharp falls in Asia and the US over the past days. However, this may not have a significant short-term impact on Kenya because China is not a big export market for the country.
“We are unlike Zambia, for example, whose 70 per cent of exports goes to China. So, we are relatively shielded from the turmoil,” analyst Aly-Khan Satchu told Business Hub.
Beijing’s struggle to find the right policy mix to shore up activity is evident as measures to correct the dwindling fortunes have led to a stock market surge, fuelling expectations of more stimulus packages.
“It is very clear that there has been serious spillover contagion from China,” says Satchu, adding that it is not just about the dip in the stock market but also about the currency and a sense that Chinese policymakers are fumbling in the dark.
But the major shift is that the slowdown in China has dented the commodity markets and Kenya’s oil and gas dreams as well.
This will mean that Kenya’s plans to join the elite club of oil exporters—a big boost for the country—will have to take a longer time than expected.
Being a net importer of oil, the country has always borne the blunt of spikes in oil prices, which are blamed for sustained high prices of essential commodities as well as a weak local currency.
On whether the Chinese situation is bound to reach crisis level, Satchu says risks have ratcheted higher. “Policy makers cannot keep throwing cheap money at the problem.
There will be a day of reckoning,” he warns, referring to the Chinese administration. Chinese economic weakness is now emerging as the new factor since the Lehman Brothers bankruptcy saga rocked the US, and hence global economy, in 2008.
Lehman were holding more than $600 billion (Sh61.8 trillion) in assets at the time of the plunge. Meanwhile, some analysts say the US stock market, which has been enjoying strong gains in recent years, could remain stable despite the knock-on effect from the China dip.
This essentially means the dollar’s grip on the shilling continues amid Central Bank of Kenya’s corrective measures. The shilling weakened again last week when it exchanged for Sh103 per greenback.