The 18th Sino-EU Summit concluded in Beijing last week, this was the first meeting between China and the EU since the Brexit announcement. Quite a critical meeting therefore required the attendance of European Council President, Donald Tusk, European Commission President, Jean-Claude Juncker and the EU high representative for foreign affairs and security policy, Federica Mogherini. China's leaders were no doubt keen to hear of the implications to Europe’s growth post-Brexit, and thus the subsequent effect to China’s economy. Not known for getting involved in Western politics, Chinese leaders had actually advised British voters to remain in the EU ahead of the referendum, stating the importance of its membership within the Union.
Regardless of how successful now ex-Prime Minister, David Cameron’s push for “golden age” ties with China once was, Beijing appear to be placing more strategic importance on links with the EU, China’s largest trading partner, with ~EUR 1bn of Chinese goods imported into Europe daily. The Sino-EU tie-up extends beyond trade, with both state-owned and private businesses in China investing as much as USD 23bn in Europe, according to reports. Ahead of the summit, Premier Li Keqiang stated that Britain's decision to withdraw from the EU has increased global economic uncertainty adding that he would like to see a “united and stable” EU going forward.
On concluding the summit, Tusk commented that there were “rich and very candid discussions on all dimensions of our relations. But most importantly our talks… were fruitful and conclusive.” he added that both parties had moved forward with their strategic partnership. This summit followed the gathering of G20 trade ministers, where leaders agreed to a new coordinated global investment policy, to cut trading costs and enhance financing; amid “very sluggish recovery and growth” globally.
Staying with China, better economic data releases have helped temper slowdown fears; industrial production and retail sales beat market expectations in June. The economy expanded to 6.7% yoy in Q2’16, ahead of market consensus, and falls in-line with the government's 6.5-7% target. This morning we also heard from Standard and Poor’s, the rating agency bumped up China’s 2016 and 2017 growth estimates by 0.25% to 6.6% and 6.3% respectively; citing the “stronger-than-expected GDP print for the second quarter”. We believe that both global economic uncertainty and domestic headwinds will continue to weigh on China’s economy, however, the government has ample fiscal capacity to support the economy; with the fiscal deficit at only 3% of GDP.