The Chinese economy is well on track with its reforms, according to fund managers. The only concern ...
The Chinese economy is well on track with its reforms, according to fund managers. The only concern is that, owing to the general slowdown in the global economy, exports are likely to decrease this year.
Export growth is down for the second consecutive month to 11.1% in April from 14.9% in March. However, as the country's dependency on exports is minimal, this does not look set to present a major threat.
Fund manager of global emerging markets at Invesco, Mike Kerley, says: 'China has been immune to the slowdown of the global economy so far. The market share has grown, the domestic economy is doing well and demand for property and corporate goods is rising.'
With GDP growth of 8.1% in the first quarter, the projected GDP for the year is 7%. Foreign direct investment has increased by 12.4% since the beginning of the year to April as the international market turns to China while growth prospects elsewhere remain unfavourable.
The Chinese government is mainly focusing on the huge domestic market, which is the main generator of wealth. Soaring demand from the domestic market has resulted in a rise in industrial production to 11.5% in April.
'While there is uncertainty in the world, China is a safe haven,' says Kerley. 'Domestic consumption is massive and sectors such as property, the automobile industry, financial services and telecommunications are booming.'
There is some concern on the status of China-US relations, leading to uncertainties on whether China will actually join the World Trade Organisation (WTO) this year.
Potential benefits of China joining the WTO are that the levels of tariffs from Chinese exports would be removed, making Chinese products more competitive in the world market.
Despite the political difficulties, Angus Tulloch, head of global emerging markets at Colonial First State Investments, believes China should still join the WTO within the next 12 months.
'It will have a negative impact on the economy if China does not join,' he says. 'From the Government's perspective, there is too much to lose if the industry does not compete internationally. Huge efforts have already been made to restructure inefficient enterprises, reform the banking system and generally make the area more commercial.'
Margaret Gadow, senior investment manager at Gartmore, says China's potential has been evident to investors since the late 1970s but a recent visit to the country has convinced her this potential is becoming reality.
She says: 'Strong anecdotal evidence of the new mood of confidence can be seen in the state of the property market in China's major cities. In Shang-hai, the mood resembles the Hong Kong market 10-15 years ago. As an indicator of confidence, the property market is overcoming its massive oversupply of office space and rents have risen sharply over the last year as a result.
'In the residential market, prices are moving up as demand grows, not least from overseas businessmen for whom buying an apartment in the city is increasingly attractive.'
Gadow says although China's entry into the WTO now looks as if it will not take place until 2002, local businesses are already planning for it and the marketplace is opening up.
l China's potential becoming reality.
l China immune to global slowdown.
l Efforts to make area more commercial.
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