New day, new low! China’s Shanghai Composite Index drops below 2,900, down 15% from April, highlighting a 28% performance gap. Confidence struggles amid economic sluggishness.

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The recent decline in China’s Shanghai Composite Index, plummeting below 2,900 and marking a 15% drop from its April peak, raises concerns about the nation’s structural challenges. This significant 28% performance gap when compared to the MSCI World Index (USD) since April underscores a deeper issue at play.

While psychological explanations for economic conditions are frequently invoked, the assertion that structural explanations carry more weight appears justified. The current consensus in China – weak consumption linked to low confidence, and vice versa – highlights a potentially troublesome feedback loop that a surge in confidence alone may not fully remedy. Analysts argue that a sustained post-Covid recovery in China necessitates a real redistribution of income, focusing on tasks such as easing unemployment pressures and fostering public wealth growth prospects.

Despite calls for boosting consumer sentiment, it becomes evident that a comprehensive positive cycle within the entire economy is imperative. The reluctance of China’s middle class to spend, a phenomenon echoed by millions, underscores the need for a clear post-Covid economic recovery to instill confidence in consumers. The situation in China appears to require not just short-term psychological boosts but a more profound structural transformation for lasting economic resilience.

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