China analyst sanguine over slowdown

International concerns over China’s economic slowdown contrast with a more relaxed attitude inside the country according to an analyst.

Joe Zhang, chairman of China’s Smartpay Group and ex-head of Chinese research at UBS, outlined his views at a Cerno Capital lunch on the financial future of China:

“Despite much international debate about the Chinese economy suddenly slowing, reflected by yesterday’s Organisation for Economic Co-operation and development (OECD) forecasts and Wednesday’s predicted consumer price index (CPI) figures, within China itself this sentiment is not mirrored,” commented Zhang

“Instead, within the country, the wider acknowledgement is that the slowdown has been happening for three to four years. At present, I don’t believe the government is under that much pressure to stimulate the economy for two key reasons: firstly, there is overcapacity across China and secondly, the one-child policy has meant a lack of the same unemployment pressure which other countries are all too well experiencing.”

“Recently, there seems to be a consensus among Western investors that the renminbi (RMB) is about to collapse, with the Chinese CPI inflation rate on Wednesday expected to fall by 0.1%. While I believe the RMB is fairly valued at present, I expect it to strengthen significantly against the US dollar in the next few years on the back of much higher trade surpluses. China has played a large part in stabilising the Asian economy and continues to still be seen as the anchor currency in that region.”

Turning to China’s trade balance, Zhang commented: “In the next year or two, we are likely to see a significant trade surplus, probably as much as we saw ten years ago; monthly industrial indicators out on Wednesday are predicted to show a slight increase of 0.1%.

“Exports will likely remain stable but imports will most likely collapse due to the following three factors: lower commodity prices, a generally weaker Chinese economy and the government’s ruthless crackdown on ‘ostentatious’ consumption by officials. The September trade surplus number of US$60bn is another good indication of what is to come.

Finally, as two-thirds of the Chinese economy is state-controlled, the government is able to significantly influence the economy. This will ensure China is able to continue to move towards a market economy, but they are not quite there yet.”

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