Vanguard Sees Chinese Real Estate, Not Stocks, Dictating Growth

  • Chief economist says property caused 80% of slowdown
  • Policy makers caught `off guard' by rapidity of change

Investors looking for an indicator of Chinese economic growth should focus on the property market, according to Vanguard Group Inc., the world’s biggest mutual-fund company.

“Real estate is the risk, not stocks,” Joseph Davis, the investment firm’s chief economist, said at a Morningstar conference on exchange-traded funds in Chicago on Tuesday. While it isn’t a high probability, a housing crash reminiscent of the one that began in the U.S. in 2007 could generate a recession, he said.

Growth in China has slowed as the country transitions from an industrial-led economy to one driven by consumers. That has investors jittery both at home and abroad, fueling volatility that led to a global market selloff on Aug. 24 . Housing may, however, be a better gauge of stress in China’s economy; 80 percent of the country’s deceleration over the last six years can be attributed to slowing investment in real estate, Davis said.

Slowing growth for the world’s second-largest economy isn’t necessarily a bad thing, if policy makers manage the shift. The devaluation of the yuan last month was “mistimed,” while attempts to prop up the stock market by buying equities were ill-advised, Davis said.

“The rapidity of the change has caught Chinese policy makers off guard, but ultimately that rebalancing is unquestionably positive,” he said.

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