A slower rate of growth that is better balanced towards domestic consumption should be seen as a positive for the country as it is more sustainable.
China’s announcement that it has lowered its growth target down from 8% to 7.5% for the year ahead is a positive, according to Alan Thein, Co-Manager, Legal & General’s Multi-Manager fund range. While initial reaction to China's lower growth rates was seen as disappointing, Thein points out the markets may have misinterpreted the implications of this growth target revision. “The change should have come as no surprise given Premier Wen Jiabao noted that this change was bringing growth into line with the 7% target already enshrined in China's current Five-Year plan.”
Thein makes the point that a slower rate of growth that is better balanced (so, quality over quantity) should be seen as a positive for the country were growth to become more driven by domestic consumption and less by investment. It should also be more sustainable, he adds.
“In addition, if history is any guide, the new lower growth of rate of 7.5% should not be seen as an outright target but rather the government's minimum acceptable level of growth, that is, the previous 8% target was easily beaten in every year, except for 2008, the year of the Great Recession.... Whilst we believe this growth transition will take place over the coming years, we doubt that there will be any major shifts in the current growth model this year, given the desire for stability ahead of the leadership transition later in 2012.”
Further optimism in the government’s management of the economy comes from DSW Investments who highlights the performance of Renminbi bonds in February, notably in the high yield sectors which followed the “positive news flow and sentiment across the globe.”
DSW Investments draws attention to inflation coming down from 4.5% to 3.2% this year providing further room for monetary easing in mainland China. One of the main investment cases for China is the commitment to a shift in its growth model - from investments and export to domestic consumption. “This development should prove supportive for the Renminbi, as one way to strengthen domestic consumption is via cheaper imports using a stronger currency.”
Caring for children and elderly relatives
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