China bulls echo Wang Qishan’s view from Davos: the economy is fine
- China has just reported its slowest annual growth in nearly three decades, but some analysts are still confident that the economy is not close to tanking
- Some analysts remain bullish on consumption, but their voices are drowned out by widespread pessimism
China has just reported its slowest growth in nearly three decades, but some analysts are still confident that the economy is not close to tanking.
China bulls are not as common as they used to be, but those that remain echo the views of Vice-President Wang Qishan, who told the World Economic Forum on Wednesday that “growth will continue and be sustainable”.
“We believe that we haven’t reached the end, we are actually pursuing more sustainable growth,” Wang told the annual gathering of elites in Davos.
China’s 2018 growth weakened to 6.6 per cent, the slowest rate in 28 years amid sluggish domestic consumption and a bruising trade war with the United States. However, Wang Qishan argued that the growth rate was “not low at all”.
These analysts agree.
“If you compare the 6.6 per cent with China’s historical data, it is certainly low, but if you compare to the rest of the world, it is still a relatively high speed. Slowing down the speed and enhancing the quality will be China’s long-term strategy,” said Chen Dafei, senior financial analyst at Shanghai-based investment bank Orient Securities.
“Wang Qishan meant to calm the market. It is good for him to signal the positive attitude because the market now is overreacting without much actual basis for a crisis,” Dan Wang, an analyst at Economist Intelligence Unit (EIU), told the South China Morning Post.
Brock Silvers, managing director at the Hong Kong-based private equity firm Kaiyuan Capital, said that many analysts and investors remain optimistic regarding China’s long-term prospects, but most are also pessimistic regarding its outlook in 2019.
“Wang is correct that the China growth story isn’t over and a slowdown can be temporarily painful without being terminal,” Silvers added.
Richard Harris, the chief executive of Port Shelter Investment Management, another Hong Kong firm, said that “Wang Qishan is completely right”.
“It was a very political comment,” he added. “You do not really understand what he means by it, of course we all know China is going to have a very successful economy, but obviously it is not going to be successful every year, it cannot be, no economy is.”
These views are counter to the widely held view that a Chinese economic slump is among the greatest risks to the global economy.
In a report launched at the forum in Davos this week, the International Monetary Fund (IMF) warned:
“A range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment with adverse growth implications, especially given the high levels of public and private debt. These potential triggers include a ‘no-deal’ withdrawal of the UK from the EU and a greater-than-envisaged slowdown in China.”
A common assertion among the China bulls is that the world’s most populous nation has a strong enough consumer market to guide it through any potential storm.
“It is still the world’s best consumer story,” said Andy Rothman, a former US diplomat in Beijing, now a strategist for investment house, Matthews Asia.
Rothman, in a blog post published on January 22, pointed to the fact that three-quarters of China’s gross domestic product (GDP) came from domestic consumption in 2018, up from just over half in 2017.
Dan Wang at the EIU is also positive on the consumer market.
“All companies can see that China’s consumer market is fundamentally sound. China’s demographic structure is at around its highest purchasing power level. The urban middle class is maturing. Thus there are great potentials for foreign companies, especially those aiming for the high-end consumer market like quality food, drink, and dairy products,” she said.
Again, these views are not entirely fashionable.
In a note analysing this week’s GDP data, Nomura analysts wrote: “We remain bearish on consumption despite a small rise in retail sales growth,” adding that they “see no signs of a sustainable rebound in the near term and maintain our bearish outlook on consumption through 2019”.
