What a difference a year makes! A year ago, the China growth miracle was plain to see. The Shanghai ...
What a difference a year makes! A year ago, the China growth miracle was plain to see. The Shanghai stockmarket was around the 6000 level; fixed asset investment was modernising infrastructure at an incredible rate; and property prices were rising, fuelled by low interest rates and urbanisation.
Fast forward to today, and we see a quite different China. The Shanghai stockmarket has fallen almost 70%; property transactions in the major cities of Beijing, Shanghai and Guangzhou are down between 29% and 50%; and the growth rate of exports has halved to a high single-digit rate. The world, China included, has been flipped on its head, and every day confidence collapses further.
It was never very likely that the central planners in China would be able to orchestrate steady growth in their gigantic country any more than capitalist countries with their inadequate regulatory systems and inconvenient political cycles have been able to produce stable growth. The reality has always been that world economic growth is cyclical, and that setting monetary and fiscal policy is as much art as science. Just as developed countries have been found guilty of adopting excessively loose monetary policies and lax regulatory regimes, so too, China has been found wanting in its currency and interest rate policies.
There is still considerable debate about the extent of China's impending slowdown. The International Monetary Fund (IMF) is forecasting real growth in China of 9.3% for 2009, down only marginally from 9.7% in 2008.
That seems optimistic in the context of a country whose export sector has expanded rapidly over several years and now represents 36% of GDP. The impact of renminbi appreciation since 2006 will surely exacerbate the deceleration of exports already seen over the past few months.
China and the region are in the midst of a cyclical slowdown. Following a six to seven-year economic boom, during which developing Asia's capital spending has grown at double-digit rates each year, economic forecasters still have some work to do to cut growth estimates to realistic levels.
It is difficult to be hugely positive given the extreme volatility of global markets in the face of recession, but, in time, China's economic growth rate will reassert itself at a considerable premium to developed markets. A year ago, Chinese equities were overvalued; today, it is time to search in the rubble of the current collapse for the winning stocks of the next 10 years.
- By Magdalene Miller, manager of the Asian Pacific Growth fund at Standard Life Investments
- Chinese stocks and property lead economy down
- Exports and capital spending to slow further than most forecasts
- Cyclical slowdowns create good opportunities.
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