International | Oct 09 2006
By Greg Peel
The Chinese economy has been driven by a “self-reinforcing liquidity cycle”, note Macquarie economists, thus driving the need for policy tightening that this creates. But for the first time in six months, it appears the macro picture is turning positive for investment in what is still the world’s fastest growing economy.
Macquarie sees the liquidity cycle continuing into 2007, thus the economic slowdown induced by tightening measures in place since July will represent merely a pause in economic growth – not the end of it. Given this is what Beijing wanted to achieve anyway, notes Macquarie, the risk of further austerity measures is as low as it’s been since April.
Macquarie further believes the slowdown in Chinese domestic demand is unlikely to extend much further. The only thing that could derail the process is a combination of a slowing economy and further tightening in the US, but if anything, the next Fed move looks more likely to be down.
The slowdown in the US will impact on China’s economic growth. The economists are forecasting growth to fall below the 10% mark in 2007 for the first time since 2002. But lending growth is running at 15% and interest rates are below 3%, which in turn should see fixed asset investment growth continuing above 25%, they say.
If you are considering investing in China, Macquarie suggests a slowing US economy means exporters and manufacturers should be steered clear of. However, the next quarter or so promises to be very supportive for property, banks and basic materials, the economists suggest.
