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Newton’s Harries: Chinese growth is unsustainable

Newton fund manager James Harries has warned against investing in China, warning that the country’s growth model is not sustainable.

Recent economic data coming out of China has been disappointing. Average house prices in 70 major Chinese cities fell by 1.2 per cent last month, compared with April 2011, following a 0.7 per cent year-on-year fall in March, according to Reuters’ analysis of data published by the National Bureau of Statistics of China.

Speaking at the Fidelity FundsNetwork Investment Forum last week, Harries (pictured), who runs the £2.5bn Newton global higher-income fund, said: “The China growth model is not sustainable. China has not had an economic cycle for 10 years. When she does have a cycle, it could be problematic.

“We are surprised by the extent to which investors underestimate the negative effect of a property-centred, credit-fuelled cycle going into reverse. There are lots of people saying property looks problematic in China but the rest of the economy is fine. We are not so sure that is true.”

Investment Quorum chief investment officer Pete Lowman says: “I am fairly lukewarm on China at the moment. There may be a property bubble forming but the government has a cash surpus. This is compared with developed market governments who are running at a deficit.

“Our portfolios only have a small exposure to China, investing in domestic companies.”

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