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Brian Tora: China’s slowing economy no cause for concern

By Western standards China’s growth is not doing too badly

Trying to keep a finger on the pulse of financial markets while a thousand miles away from London has proved more difficult than expected. There is plenty of news on the internet, but the broadcast media is so dominated by the Olympics that it is hard to detect any other stories worth considering.

Markets themselves have proved remarkably stable. And this despite news that the weaker southern European countries are being squeezed by the stronger northern ones as their banks rein in their lending to these perceived riskier prospects. Indeed, news in general has taken on a surreal summer aspect which suggests everyone is intent on enjoying their holidays, or the Olympics – perhaps both – preferring not to tackle difficult subjects head on.

In the US, the Federal Reserve announced that further economic stimulus is desirable, but declined to say what form it might take, while we know that Mr Draghi of the European Central Bank has stated he will do whatever is necessary to save the euro. ‘Whatever’, of course, was not quantified and his initial outline disappointed investors. A pity, really, as our own FTSE 100 index had been making steady, if unremarkable, progress.

Meanwhile, I read that the old adage that if America sneezes, the rest of the world catches a cold, has been superceded by one in which China replaces the world’s largest economy. The contention is that only China has the size and scale to ensure demand for goods and services from the West is maintained. With the Chinese economy slowing – second quarter growth came in at 7.6 per cent, down from 8.1 per cent in the first – perhaps there are reasons to be worried.

But hang on a minute. Growth of 7.6 per cent may be the slowest rate delivered by China since the start of 2009, but by Western standards it is not bad. And China still has a great deal of ground to make up on the developed world. Figures released recently from the National Bureau of Statistics of China point to the steady urbanisation of the Chinese population. By the end of 2011 some 51.3 per cent of people in China lived in cities – up from a third 10 years earlier. Moreover there are now 30 cities with a permanent population of 8 million or more.

Why is this important? Urbanisation stimulates consumption. The more the drift from the country to the town continues, the more China will need to consume. This is the hope on which many forecasters are pinning their expectations now that the baby boomers of the Western world are retiring and the demographic time bomb starts to tick ever louder.

Of course, this is hardly news, but unless you want the latest on the Olympics, there isn’t a lot to get your teeth into at present.

Brian Tora is an associate with investment managers JM Finn & Co


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