The rest of the world may be facing the biggest downturn in at least a generation, but China’s GDP will still grow by 8% this year. That’s the view of Wen Jiabao, the Chinese Premier. Speaking to China’s parliament last week, he said that public spending, mostly on infrastructure, will more than double to 908bn yuan this year, while spending on social security and employment will rise 22% to 335bn yuan. That should be enough, he argued, to keep chimneys puffing and concrete pouring. The market, which has rebounded sharply this year, seems to agree.
“Rhubarb, poppycock, bilge, balderdash and piffle!” counters Albert Edwards at Société Générale. Sure, data from China showed that the economy grew 6.8% in the three months to December, but “I would eat my hat if the Chinese economy was doing anything other than contracting right now”, says Edwards. For example, last July Japanese exports to China were growing at a 16% annual rate. By January, they were shrinking at 35% a year.
Most other economic indicators also suggest China is in a slump rather than heading for anything like 8% growth. Seven million graduates are looking for work; up to 20 million migrant workers have been left unemployed since the New Year; and electric power output – a good indicator of the levels of activity in the economy – shrank by 5% during the last quarter of 2008. Hopes for a return to the old paradigm (US consumption bolstering huge infrastructure investment) are unrealistic, says Stephen Roach, Morgan Stanley’s Asia chairman, in The Wall Street Journal.
Yet with the City desperate to find a way out of the current crisis, many investors want to believe China offers an escape route. For example, fund manager Jupiter is launching a new investment trust, the Jupiter China Sustainable Growth Fund, which will invest in government-spending fuelled areas such as waste management and clean energy, says the FT. Over the long term, the bull case for China is probably intact – the current downturn is more likely to slow the country’s development as an economic power than utterly derail it. But with global trade weak, it’s hard to see the recent surge in Chinese equities (the Shanghai market is up 16% since the start of the year) as anything more than “a rally without legs”, says Jerry Lou, China equities strategist at Morgan Stanley, in BusinessWeek. It’s not time to buy China yet.