We are constantly watching out for emerging megatrends…
Because noticing a change before it happens is one of the best ways to boost your investment performance.
And it looks like something big is about to happen in one of the world’s largest economies…
Everybody Is Ignoring This Potential Megatrend
You may have heard that the Chinese economy is slowing down.
In the second quarter, it grew by 0.8 percent. This number is way lower than the 2.2% recorded in Q1.
And the outlook for the rest of the year isn’t good. Most economic indicators point to a slowdown.
So much for the post-Covid reopening…
That’s the mainstream conclusion. China’s economy will likely get worse before it gets better.
Unless China’s government does what it did in the past: unleash a massive stimulus package.
If it happens, we could see tens if not hundreds of billions of dollars’ worth of investment in green technology, infrastructure, and other sectors.
And it looks like such a stimulus is very likely.
Put simply, the Chinese government doesn’t have too many other options.
In the past, it fueled economic growth through leverage. Debt-fueled property and infrastructure projects pretty much dominated the country’s economic landscape after the Global Financial Crisis of 2008-2009.
But it increasingly looks like debt-supported growth isn’t an option anymore.
Interest rates are higher across the world… and the property sector is burdened with debt.
At a macro level, China’s debt-to-GDP ratio was at 279% in the first quarter of this year, an all-time high. This is barely sustainable, and there’s not too much room for expansion here.
So, What Is the Other Option?
The other option is a fiscal stimulus.
In other words, government spending and tax breaks.
We see this happen in the United States already. The country’s Inflation Reduction Act and the CHIPS Act are prime examples. The CHIPS Act alone includes about $280 billion in government spending and investment.
And most of it will go into high-growth areas such as semiconductors and digital infrastructure.
Europe has enacted its own multi-billion-euro package to stimulate the growth of its domestic high-technology industry. It involves about $47 billion in total investment in the semiconductor space and related areas.
We hope you have noticed the trend by now…
In this “new normal” environment of high interest rates and choppy economic growth, governments around the world are competing against each other to attract investment in high-tech areas such as chips and artificial intelligence.
China has so far managed to stay away from this frenzy… but not anymore.
The country is already a leading tech manufacturer… and its government has the political will to do whatever it takes to fortify its position and keep the population content.
This is why, in our view, it has no other option but to spend heavily on high-technology sectors and infrastructure.
It will generate economic growth and fix the GDP numbers… it will make the population happy and employed… and it will continue driving the competition among governments.
All of this will be good for AI, as well as physical and digital infrastructure.
The largest driver of one of the biggest megatrends ever is government spending. And it looks like we are about to see this spending spree reach global proportions.
Thank you for your loyal readership,
The Financial Star team