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China slowdown is over-hyped, says Resolution

China’s economy will slow less sharply than many commentators believe and will maintain double-digit growth post-Olympics, says Resolution Asset Management.

According to Resolution Asset Pacific growth fund manager Diamond Lee, China’s economic growth will only slow to around 10-12 per cent compared with commentator predictions of 7 per cent.

“I do not believe growth will fall to less than 10 to 12 per cent, certainly not anywhere near the 7 per cent I have seen in some forecasts, with reconstruction effects boosting demand” he says.

Although private sector investment in China may tail off in the second half of 2008 due to corporate margin squeeze, the fund manager expects property prices to undergo a correction later in the year. Lee believes that reconstruction investments will help offset the slowdown in private sector investment following the damage caused by the Chinese snowstorm and earthquake in the first two quarters.

He also notes that Chinese inflation rate is bucking the global trend and falling with the energy component of the country’s CPI basket much smaller than the dominant food element. He says: “China is unique in that its inflation is coming down while the rest of the world is seeing big rises. China’s inflation cycle is simply different to the rest of the world.”

Lee expects headline inflation to continue falling as pork prices prices decline with the recovery of livestock numbers following a virus outbreak.

Lee says: “Some serial bears have been saying for years that growth in China will fall, but only now is there any truth in it, as there is likely to be a slight slowdown from its current white-hot level.”

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