China is heading for a 'perfect storm' of economic headwinds

[Goldman Sachs]( [BRIEFINGS] April 28, 2022 How China’s ‘Perfect Storm’ of Economic and Regulatory Headwinds Is Affecting Investors Against a challenging macroeconomic backdrop, COVID-19 lockdowns and ongoing supply chain bottlenecks, investors are reevaluating their exposure to China. “We are in a ‘perfect storm’ situation where we have a number of economic and regulation headwinds all going against the market at the same time,” Goldman Sachs Research’s Kinger Lau, chief China equity strategist, tells host Allison Nathan on the[latest episode of Exchanges at Goldman Sachs](. Coronavirus cases are still elevated. Given the recent uptick in COVID-19 cases, lockdown measures are at their most stringent levels since 2020, explains Hui Shan, Goldman Sachs Research’s chief China economist. “What is really going on right now — what we are seeing tracking daily information and varieties of indicators — is that the number of cases is still very elevated,” Shan says. “But at the same time, the number of places being impacted is declining.” Do Chinese equities have room to rally? Chinese equites have been under pressure, trading below their historical averages, Lau notes. “China is still trading below our expected fair value and there could be potential for recovery in valuation down the road as long as a global recession could be avoided and some of these risks do not develop into bigger systemic problems.” Expect slower economic growth. Investors have typically come to expect potential growth rates of 5% to 6% from China, Shan says. “But we think we might be settling into slower growth. Because you are trying to solve the housing access problem, because you're trying to solve your energy security problem or your regulatory objectives, when you're trying to achieve some other goals, there will be costs,” she says. “The costs to us will be slower economic growth.” Subscribe wherever you get your podcasts. [Spotify]( | [Apple]( | [Google]( | [Stitcher]( [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=How%20China%E2%80%99s%20%E2%80%98Perfect%20Storm%E2%80%99%20of%20Economic%20and%20Regulatory%20Headwinds%20Are%20Affecting%20Investors&body=https%3A%2F%2Fyoutu.be%2Fd5NwyE-hzvo) Goldman Sachs Releases 2021 Sustainability Report COVID-19, supply-chain issues, rising inflation, war in Ukraine — they all reinforce the need to build a more sustainable future, says Goldman Sachs Chairman and CEO David Solomon in the firm’s [2021 Sustainability Report](. “It’s the very complexity of the challenge that demands a holistic approach,” he says, pointing to how sustainability has been integrated across the firm’s businesses, its work with clients, operations and partnerships. This year’s report, titled “[Progress Through Performance]( charts the firm’s most recent activity to advance sustainable economic growth and financial opportunity particularly across four key levers: [technology]( [innovation]( [data]( and [partnerships](. This holistic, One GS, approach has helped accelerate Goldman Sachs’ efforts to meet its sustainability targets, which were announced in December of 2019. “Of our 10-year goal of $750 billion in sustainable finance activity,” Solomon writes, “we’ve achieved approximately $300 billion so far, including $167 billion in climate transition, $50 billion in inclusive growth and the remainder in multiple themes.” [Read report]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Goldman%20Sachs%20Channels%20%E2%80%98Progress%20Through%20Performance%E2%80%99%20for%20Sustainability&body=https%3A%2F%2Fwww.goldmansachs.com%2Fa%2F2021-sustainability-report.pdf) Briefly: After Long Decline, Oil and Gas Investing is Poised to Boom Against the backdrop of war in Ukraine, 2022 is seeing renewed focus on energy security as Europe grapples with how to restructure its supply to reduce its reliance on Russia. The crisis has revealed the challenge ahead for the world as it faces geopolitical conflict, efforts to decarbonize and high global inflation. Today, [the energy industry is at turning point, with an expected increase in investment across commodities]( including oil and gas, according to Top Projects, Goldman Sachs Research’s annual analysis of the energy sector. We spoke with Michele Della Vigna, head of Goldman Sachs’ natural resources research in EMEA, to learn more. In Top Projects 2022, which GS Research has been publishing for nearly 20 years, you talk about an underinvestment in energy over the last seven years. What has this meant for the sector? Michele Della Vigna: There are three ways we can look at the depths of the underinvestment we have witnessed since 2015. Firstly, we can look at the reserve life in the sector. It used to be 50 years and it’s now declined to 25 on the back of falling oil reserves and increasing production. This shows the lack of focus in exploration and resource expansion on the back of the push for decarbonization. The second way to look at it is to ask ourselves: How much future production have we lost because of all the delays in investment decisions on new oil and gas projects? The answer is 10 million barrels per day of oil, which is the equivalent of Saudi Arabia's daily production and 3 million barrels per day of oil equivalent in liquefied natural gas (LNG), which is more than the equivalent of Qatar's daily production. If we had not kept delaying new investment decisions in oil and gas since 2014, we essentially could have had a new Saudi Arabia and a new Qatar. The third way is just to look at the billion dollar numbers. In upstream oil and gas, the industry at the peak was spending $900 billion dollars per annum which troughed at $300 billion dollars in 2020, so a two-thirds reduction in capex. These are three different ways to look at the issue but the answer is the same: We have exhausted all of the spare capacity in the system, and now we are no longer able to cope with supply disruptions like the one we are currently witnessing because of the Russia-Ukraine conflict. [Learn more about Top Projects and how investments in energy are changing here.]( [Read more Briefly Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Investments%20in%20Oil%20and%20Gas%20Are%20Set%20to%20Boom%20After%20Years%20of%20Decline&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) The Entrepreneur Fighting Inequity Within Health Care Above (L to R): Kim Posnett of Goldman Sachs and Kate Ryder of Maven Clinic In an [episode of Talks at GS]( Kate Ryder, the founder and CEO of Maven Clinic, a telemedicine network that specializes in everything from fertility and pregnancy to adoption and pediatrics, discusses innovation across health care and her efforts to eliminate gender inequity in the industry. On expanding access to health care for underserved communities: “To innovate within health care, we definitely believe you have to innovate from within…You have to kind of get into the guts of it to really make change…We’re trying to bring better health care to underserved and marginalized patients. Whether that’s women, the LGBTQ community or children.” On leveling the playing field across health care: “I want to be able to show up to every person who is thinking about starting a family, or in those early years of building their family. And we’re showing up in a way you need us to show up.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Female%20Entrepreneur%20Fighting%20Inequity%20Within%20Healthcare&body=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DlhE4qUFn1qQ) BRIEFINGS BRAINTEASER: The Elusive Second Term for French Presidents Last week, Emmanuel Macron won a second term as president of France in a runoff election against Marine Le Pen. For this week’s BRIEFINGS brainteaser, do you know who the last French president (besides Macron) to win re-election was? A) François Hollande B) Nicolas Sarkozy C) Jacques Chirac D) Charles de Gaulle [Check your answer here](. [Take the quiz]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=BRIEFINGS%20BRAINTEASER%3A%20The%20Elusive%20Second%20Term%20for%20French%20Presidents&body=https%3A%2F%2Fonegs.co1.qualtrics.com%2FQ%2FDistributeSection%3FContextSurveyID%3DSV_eKE1ZVhKkYm8W6G) Goldman Sachs Media Highlights CNBC - April 26 [Japan needs to raise wages to deal with its shrinking labor force, says Goldman Sachs]( (2:59) CNBC - April 25 [Biggest impacts on investors come from low-income consumer, war impact on energy and China Covid, says Goldman’s Sheridan]( (2:43) Bloomberg - April 25 [Goldman: Economic conditions bad for small biz]( (6:43) The Wall Street Journal - April 23 [How Goldman Sachs is encouraging companies to disclose emissions data]( [Subscribe]( [Unsubscribe]( Some of the images used in this newsletter are sourced via Getty Images. 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