CHINA WEEKLY
It was a relatively quiet week in China last week, with little truly market moving news for digestion. We feel this is a good time to step back and assess the broader Chinese growth situation and discuss weather the mouthwatering pace of growth over the last 30 years can be maintained. China, now the second largest economy in the world, has reported steadily slowing industrial production, which on the one hand suggests that China will manage to engineer a ‘soft-landing’ and slower but more sustainable growth. But, on the other hand the recently slowing may be a more ominous sign, some business leaders seem to think so. Rio Tinto’s CEO Tom Albanese said a few weeks a go that he expect Chinese growth to slow to 6% a year some time this decade, warning that “nothing is forever”.
Some market watchers, like those at Deutsche Bank, are dismissive of these worries and the recent string of softer economic data. Deutsche analysts wrote in a report that there is an expectation for Chinese data to continue to show a slowing economy, but this is not a concern since the analysts expect the administration to loosen the purse strings again in Q4. More stimulus is widely believed to be the cure for any slowdown in growth, however, Beijing will certainly keep an eye on the property market for more signs of over-heating. Such over-heating and a glut of empty properties may serve to temper any further stimulus measures making it all the more likely we are headed for a significant slowdown.
If we shift our focus to the telecom industry, it provides a microcosm of China’s growth exemplified in a single sector. Last week China Unicom reported first half profits that tumbled a staggering 62%. The telecom sector has showing impressive growth over the last decade adding some 800 million mobile users, but now looks like any other western market more than an emerging market. Growth has slowed to represent the pace that we are all to familiar with, the slow growth of a mature market where business is about selling higher-priced products rather than signing up new subscribers.
Fund managers have already started to re-asses the situation and hunt for the next country poised for a decade of soaring growth. There was plenty of talk about HSBC’s wanting to invest in South Africa’s Nedbank and of major players shifting their focus to the so-called ‘CIVETS’ (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa). These money managers are used to seeing double-digit returns from investments in China, they will begin to ask themselves, amid slower growth, if further investment in China is worth it.
Written by Jonathan Granby, DailyFX Research Team
If you wish to contact the author with comments or questions email jgranby@fxcm.com
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