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Home Global Economic News Global Chinese economy: No asset bubble says Barings
Chinese economy: No asset bubble says Barings PDF Print E-mail
Written by Sam Coventry   
Thursday, 21 January 2010 14:43

Indications suggest that loans are not funding speculative activities and as such no Chinese asset bubble is yet apparent.

________________

The Chinese economy continues to boom, GDP figures reached 10.7% in the final quarter of 2009.

For 2009 as a whole, GDP growth came in at 8.7%, exceeding both the government’s 8% target for the year and the market’s expectations.

The government has acted to support the economy and a dramatic increase in bank lending has been an integral part of this. Indeed, China’s new loan growth reached an all-time high in 2009, leading to concerns that an asset bubble is forming. At the same time, December’s consumer price inflation rose to 1.9%.

Inevitably there have been growing concerns about the growth of a Chinese asset bubble, something that analysts at Barings Asset Management refute.

According to William Fong, Investment Manager of the Baring China Growth Fund, China has achieved an outstanding economic stabilisation via government sponsored infrastructure development and the 2009 GDP figures are a testament to this.

"Looking ahead, we expect interest rates to rise in China. However, we believe concerns about an asset bubble are overdone. The ratio of non-performing loans, and the total amount of bad loans, have declined in China in 2009," says Fond.

According to Baring new loans made in 2009 are mostly being used to fund Government and infrastructure projects, as well as to finance industrial capital spending.

Fong says:

"The suggestion that these loans are mainly being used for speculation in the equity and property markets is erroneous, in our opinion."

"We believe there is ample room for China to make further developments from a domestic perspective that will enable it to offset (or digest) the actual emergence of non-performing loans, when they eventually occur."

"Although we expect China to continue to deliver high GDP numbers over the long term, GDP data may experience a bumpier ride over the next 2-3 years.  Some growing pains are inevitable and it is important to remember that if the Chinese government reins back bank lending substantially, they will do so as a part of a move to remove excess liquidity/credit in the market and to normalise the credit supply to ensure healthier economic development in the long run.

"In terms of renminbi appreciation, we do not expect this to be a major near-term driver of the market and view it as more of a long-term story. We do not expect the renmimbi to appreciate within the next six months.

"Turning to the equity market outlook, 2009 saw the equity market make strong gains and the first leg of the rally is now behind us. 2010 is likely to be a year when good stock picking will be key. Our view is that companies able to deliver superior earnings will be rewarded accordingly."