Is The Chinese Growth Story Over?

China's growth rate has fallen below 8%, but there are still reasons to remain bullish on the overall Chinese growth story

Peter Esho 6 September, 2012 | 11:13AM
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This article is part of Morningstar's "Perspectives" series, which is a series of articles written by third-party contributors.

Much has been said about the recent data coming out of China. Not only has the aggregate rate of growth fallen below 8% but recent anecdotal evidence in iron ore prices in particular has also been pointing to weakness. We remain bullish on the overall Chinese growth story and see the current economic softening most likely as an intentional government driven slowdown, rather than a bust. We don’t currently subscribe to the doomsday scenario that China is about to drift into insignificance and the points to back our investment thesis are summarised below. Our view is based on a long term ideology.

The Chinese Government & Economy are Intertwined

First of all, the structure and strategy around the Chinese economy cannot be viewed in the same way as other western developed economies. An investment view on China needs to consider one of the most important underlying elements – the ability of the central government to navigate its way through challenges. The Communist party needs the economy and associated flows of capital in order to sustain its existence. For many Chinese, this is the only system of government they have known. The US and European economies can withstand a severe financial shock without a shock to the underlying system of government, but in China the same does not hold. The Communist party will do all it can in order to sustain social and political order and the economy is to a large extent the most important part. A collapse in China’s economy could see a collapse to the system of government, something the ruling party cannot tolerate. So the allocation of resources and fiscal approach is not purely driven by short term economics.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC2,099.00 GBP0.00Rating
FIH Mobile Ltd1.18 HKD0.00
Fortescue Metals Group Ltd17.10 AUD0.00Rating
Glencore PLC354.65 GBP0.00Rating
Industrial And Commercial Bank Of China Ltd4.61 CNY0.00Rating
PepsiCo Inc160.62 USD0.00Rating

About Author

Peter Esho  is chief market analyst at City Index.