Additional Fiscal Stimuli Pave The Way To Recovery
CityWire reports today on China’s decision to allocate an initial four trillion RMB (£1.3 trillion) to spend on infrastructure products and consumer spending initiatives in coming years, looking to jumpstart its economy, which has lagged somewhat in recent months due to reduced demand for its exports in North America, Japan, and Europe. The author suggests that it is a good time to invest in several industries, as the potential for massive growth in certain sectors should pay off as these investments mature and China makes more progress in its transition from a state-dominated and export-led developing nation to a more consumer-led economy.
So what are the opportunities and how can managers harness them? Is this the new source of the world’s wealth or will investors be suckered into a state-led dead end?
On a superficial reading, the numbers appear to speak for themselves. Chinese furniture sales increased 24% in March and in the same month overall lending rose 5.8% on 2008. The precipitous declines in export figures among a basket of regional trading partners have been slowed by Chinese demand, which has also been strong enough to sustain a global rally in copper prices.
For the time being, [Nikko’s China Equity portfolio manager Kwokon] Fung said he was buying heavy industries such as rail rolling stock, machine tools and electrical transformers and components. He said Chinese heavy industries had developed rapidly, and that little cash would go abroad. On the downside, however, he warned the government was likely to slow its drive to greater social and economic liberalisation as it suffered an attack of nerves.
The author agrees that it is too soon to tell whether these rounds of stimulus spending will gain traction and really get the ball rolling for the Chinese consumer going against centuries of tradition and becoming a free-spending, low-saving global consumer in the near term. A simple Google search to look into stories about China‘s potential future also bring up similar results. However, investment professionals continue to be bullish that the infrastructure and industry spending currently taking place will pay off in the future — and that measures taken to convince individuals to cut back on their rainy-day saving might take place sooner rather than later:
Bryan Collings of the Hexam Global Emerging Markets fund said that he was still building exposure to China. He said targeted tax cuts for the lowest earning families and subsidies for white goods would deliver value for money, but mostly he had belief in the political will of the Chinese government to make it work.
Among this generation of Chinese, where there is a will, there is a way.