International | Jan 16 2008
By Chris Shaw
When China reported a smaller than expected trade surplus in December and one that was almost US$4 billion less than was recorded in November many experts began to question whether a decoupling of Asian growth away from the US was indeed occurring, as the trade data suggested a greater vulnerability in Chinese exports than had previous been thought.
But in the view of GaveKal Research such a fall in the trade surplus was only to be expected given the increase in incomes and purchasing power for Asian consumers at the same time as life has become tougher for the US consumer.
This leads the group to suggest China’s trade deficit will continue to shrink, while its currency is likely to continue to strengthen against not only the US dollar but the euro as well.
While such outcomes would suggest the end of the Asian growth boom GaveKal argues otherwise, taking the position the region is now able to generate its own growth drivers rather than simply relying on consumers from the rest of the world.
The biggest threat to the growth story is actually internal in GaveKal’s view as it notes the Chinese government has gone from promoting deregulation and allowing excess liquidity to flow into other markets to the introduction of more restrictive policy initiatives designed to keep a lid on inflation.
These measures include a capping in loan growth at the big four state-owned banks, a freezing of prices on daily necessities and contradictory measures with respect to the real estate market, all of which highlight just how determined the government is to bring inflation under control.
Given this determination it is GaveKal’s view investors should remain wary of Chinese equities in the shorter-term, as the policies being introduced and already brought into play are unlikely to provide a boost to the market given they will restrict liquidity growth and could weigh on the level of investments.
