China Market after the Olympics
By Grandtag Research Department James Cheng & W. S. Hui
The Beijing Olympics 2008 has started in fanfare of unprecedented proportions, it is now concluded with spectacular results, bringing utmost satisfaction and pride to the people of China as well as winning admiration from the world over.
Back in 2001 when China won the privilege of hosting the Olympic Games, it brought much hope to the country, which was eager to demonstrate to the world that China has come of age and is determined to become a major player on the global stage. And indeed, under the watchful eye of the international community, China has excelled in every aspect and exceeded every expectation in the conduct of the Olympic Games.
The preparation for the Beijing Olympics has contributed in no small part to Chinaˇ¦s economic growth for the past few years before the games; over USD 40 billion or a staggering 1.5% of Chinaˇ¦s GDP was committed to the massive infrastructure construction for the Olympics including the new Beijing Airport Terminal, expansive highway systems and the like. All these took place during the times that coincided with worldwide phenomenal economic growth starting in mid 2002. The combined forces of Chinaˇ¦s Olympic stimulant and global growth have ushered into the forefront of the super boom in commodities and contributed to the sudden surge in inflation.
Pre-Olympics, the stars seemed to be perfectly aligned in favor of Chinaˇ¦s growth along with the rest of the worldˇ¦s; the unparalleled Chinaˇ¦s economic advancement was a subject of envy, shining at 10% plus growth year after year on ends since 2001. But good times never last forever; we are painfully learning to come to terms with the precipitous stock market downturn since late 2007.
As the world is reeling, from the liquidity crunch in the wake of housing bubble burst in the US; all the Emerging Economics are wrenching lower by the day as a result of faltering demand from the US, Europe and Japan; Chinaˇ¦s growth has stalled, slowing down to 10.1% from its recent high of 12.6% posted in 2Q, 2007, its equity market tumbling to an 18-month low, crashing below 2200 China composite bench mark, a drop more than 60% off its peak, overtaking Vietnam as the worst performer for the year; across the board, even the stubbornly bullish commodities are fizzling. Investors around the world are held hostage to a wave of severe asset decline, with no end in sight. Under the present sentiment of extreme pessimism, we canˇ¦t help asking ourselves if the China economic growth is doused along with the Olympic flame?
Hardly so, globalization has brought a level of transparency and efficiency that would be unimaginable before the web age; the world economy is in a much better shape than most people think it is. To get the perspective right, we must realize that virtually every asset class has been exceedingly over-bought; we have reached the point in an economic cycle to correct the imbalances so as to lay the ground work for the global economic engine to throttle again.
As a major economic player, China is unable to spare from the global correction. But Chinese authorities will do anything within their capabilities to avoid a sharp slow-down. Post Olympics, Chinaˇ¦s official priorities are geared towards maintaining growth and creating employment. To make up for the slow-down in exportation, China has earmarked USD60 billions on transportation infrastructure, power station and waterway constructions in its five year development plan running through 2010. This colossal economic pump priming will succor China to navigate through the economic turbulence and to emerge from it stronger; the plain fact that China has the highest savings rate in the world, with a currency reserve at USD1.8 trillion; China has ample financial muscle to support its pro-growth policy. On the domestic front, evidence is gathering that China is starting to develop its internal consumption market which, in long run, will serve as a cornerstone to balance its economic growth on an even keel.
With all the strong fundamentals in place, vast structural difference in labour costs between the east and the west, continuing improvements in infrastructure, and a growing mass of the middle class, China is on the right track to achieving superior growth for decades to come, notwithstanding the developmental path is at times bumpy. No one tells a China story more succinctly than a colleague of mine, ˇ§an economic story in the absence of China is never a growth story; a fund portfolio missing out a China component is not a growth portfolio at all."
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