By Chris Shaw<\/p>\n
Last year the market was concerned Chinese growth would struggle to reach 8.0% in 2009 but as at the end of September year-to-date growth was 7.7% and strengthening. This leads US Global Investors China Region Fund co-manager Romeo Dator to suggest growth for the year will easily exceed the 8.0% level. <\/p>\n
Such a solid growth outlook, especially at a time when much of the rest of the global economy is struggling, has led many in the market to suggest the Chinese economy is a bubble but Dator takes the view this is not the case and China should enjoy strong growth prospects for at least the next 20 years.<\/p>\n
He offers a number of reasons in support of his positive view, the first being the Chinese economy continues to translate into a consumption-based one, as evidenced by strong and getting stronger retail sales figures that in October grew by 16.2% in nominal terms. <\/p>\n
While the retail sales number isn’t an ideal measure, Dator suggests it is a reasonably good one as it includes not only Chinese government purchases but also sales to consumers. As well, industrial production and power generation both rose by more than 16% in year-on-year terms in October, while housing starts rose by better than 50% for the second consecutive month.<\/p>\n
Also supportive to the longer-term growth outlook, in Dator’s view, is that the economy is undergoing structural changes such as a transition to a service-related economy, this sector being the fastest growing in China and now accounting for one-third of the total workforce.<\/p>\n
As Dator points out, generally the size of the service sector is directly correlated to the consumption of goods and services and this explains why the government has directed a large amount of spending stimulus on areas that boost the domestic economy.<\/p>\n
A further plus for the longer-term, in Dator’s view, is that the government in China has an inbuilt exit strategy from its stimulus measures in that once it has created a strong enough base, private sector investment can simply take over from the public sector as the major investment driver.<\/p>\n
Recent falls in loan numbers suggest the government is working to prevent any bubble forming, Dator pointing out this means the government is making it tougher to borrow money in some instances to prevent overheating in various sectors. In comparison to the US, investors in China have fewer options meaning it is easier for the government to put controls in place to prevent bubbles from forming.<\/p>\n
Finally, Dator suggests a key positive for Chinese growth is the fact short-term goals are matching up with the long-term goal to get consumers to spend more, which contrasts with the conflicting shorter and longer-term goals of the US policymakers. <\/p>\n
This focus on domestic consumption, a growing service sector and increased private investment will help protect the economy from external issues in Dator’s view, so supporting economic growth. At the same time, he suggests government controls will help limit the potential for any economic bubbles to form.<\/p>\n","protected":false},"excerpt":{"rendered":"
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