Tale of Two Chinas Is Emerging as Economy Slows, Fidelity Saysby
A tale of two Chinas is emerging as the country transforms its export-based economy to one centered on consumption and services, according to analysts at Fidelity International.
"There is a story of two halves, old and new, and also a story of north and south," Henk-Jan Rikkerink, Fidelity’s London-based global head of research, said during a visit to Hong Kong.
Regions of the country where businesses focus on "moving up the value chain, greater innovation, higher wage growth, and all of that supports the China consumer story" are flourishing, with growth rates above 6 percent, Rikkerink said. "The areas that are very heavily dependent on resources are struggling more as demand declines and capital spending is cut."
Yunnan province, a popular tourist destination in the south of the country, achieved 8.7 percent growth last year, well above the national average of 6.9 percent. In contrast, Liaoning in the northeastern rust belt managed just 3 percent.
Fidelity surveys views of its 200 analysts around the world each year to produce a global business sentiment indicator on a scale of 1-10, with 10 the most positive. Results of the latest survey show that China scored 4.1, indicating a deteriorating overall corporate climate. The 2014 reading was 4.4.
"Our analysts overall are forecasting a deceleration, not a collapse," said Rikkerink. "About half the China analysts are reporting that their industries are either in slowdown or in recession, and therefore returns expectations are not as positive in 2016 as they were in 2015 in terms of the year ahead. That is feeding through to capital expenditure as well as management confidence."
China publishes first-quarter gross domestic product figures Friday amid concern about the pace of economic growth. GDP growth is projected to slow, with a consensus of economists polled by Bloomberg predicting 6.7 percent as of April 8.
Societe Generale SA Chief China Economist Wei Yao expects a "bumpy landing" for the economy, while the bank sees "significant risk" of a hard landing and resultant "lost decade" of economic stagnation.
"A soft landing in our view is very unlikely because that entails a very smooth transition, and it’s not going to be smooth," she said. "There are things the Chinese government will not be able to manage very smoothly. The policy makers are trying to slow down the economy without a crisis -- no one has ever really successfully done that."
China’s slowdown "has been coming for some time, it’ll be bumpy but it will be gradual," Rikkerink said.
The view is shared by Shang-Jin Wei, chief economist of the Asian Development Bank.
"There’s a lot of talk about a hard landing, or sharp decline in China’s growth figure," he said during a visit to Hong Kong. "This is very unlikely. Our baseline case is a continued moderate decline in the growth rate."