Investors all over the world are watching the People's Republic of China this August, looking closely for signs that the global economic powerhouse will unleash another stimulus program to bolster its faltering economy.
We've been covering the woes of China's economy for a while here at the Fool. Earlier this month, we discussed the country's latest inflation figures, which showed that consumer prices in July fell for the first time since February 2021, down 0.3% year over year.
Indeed, the Chinese economy has been looking especially vulnerable in 2023. These deflationary figures stand in stark contrast to other major economies. In both Australia and the United States, inflation has been falling to healthier levels from the highs we've seen over the past year or two. That's while economic growth is remaining resilient.
Many economic commentators are now saying that the elusive 'soft landing', where rising interest rates damped inflation without causing a recession, is now a distinct possibility.
But the economic difficulties that China is facing are so dire that they are leading to predictions of a government-backed stimulus package in the not-so-distant future.
These predictions are only escalating following news of another property company in China under pressure.
In late 2021, global markets were rocked by the near-collapse of Chinese property developer Evergrande.
Now, according to Reuters, there are reports the country's largest privately owned property developer, Country Garden, has missed two August bond coupon payments.
According to the report, "another batch of sub-par data this week could force authorities' hand" when it comes to a new stimulus package.
So if China does do down the stimulus path once again, which ASX shares could benefit?
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Which ASX shares could win from government stimulus in China?
Well, there's little doubt that the biggest winners would be the major ASX mining shares. Iron ore miners like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG) have been some of China's largest suppliers of raw commodities for the past decade or two.
Indeed, it was demand from China that helped keep these companies' profits afloat during the COVID pandemic. It was the same during the global financial crisis earlier this century.
As such, the likes of BHP, Fortescue, and Rio would be first in line to benefit from a government stimulus package in China. Especially if it involves infrastructure spending or the property sector.
Diversified miner and China exporter Mineral Resources Limited (ASX: MIN) would also probably benefit as well.
We might also see an improvement in the fortunes of gold shares like Newcrest Mining Ltd (ASX: NCM) and Northern Star Resources Ltd (ASX: NST). The Chinese government has been a significant customer of these gold producers over the past decade as well, as it has looked to bolster its gold reserves.
Agricultural shares could be a dark horse as well
Depending on the nature of whatever stimulus China does announce, if indeed it does, we could also see Australian food producers profit. If the stimulus finds its way into the hands of Chinese consumers, we could see an uptick in demand for products like wine, beef, seafood, malt, dairy, and other popular Australian produce that Chinese consumers have shown a predilection for in the past.
Of course, China still has trade barriers in place for some of these products, including wine, seafood, and beef. That's despite the Chinese Communist Party removing barley tariffs earlier this year. According to recent reporting in The Guardian, prime minister Anthony Albanese plans on raising the ongoing trade barriers directly with Chinese president Xi Jinping later this year when he visits China.
So, obviously, Australian food producers benefitting from a stimulus package is a bit longer of a bow to draw. But even so, it's worth keeping an eye on the likes of Treasury Wine Estates Ltd (ASX: TWE), United Malt Group Ltd (ASX: UMG), and other ASX agricultural shares if and when a stimulus package is announced.
