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Revisiting the China Boom
China’s economy is at a turning point. After several years of double-digit expansion, concerns
about economic overheating are giving way to caution about the downside risks to growth. GDP
growth is expected to slow moderately, as exporters grapple with soaring costs and weakening
global demand. In the domestic economy, a flow of recent data suggests that a cyclical
downturn is taking hold of key sectors of the economy, from property to autos. Amid growing
evidence that growth in the world’s largest emerging economy is slowing down a notch,
investors are revisiting the factors behind China’s boom, and studying the implications for
commodities demand and the companies that have benefited from China’s growth. The
following report examines the structural and cyclical issues impacting China’s economy and
highlights some bright spots in the corporate landscape.
A turning point in China’s economy
While Chinese manufacturers remain highly competitive, the country’s export sector boom has
moderated in recent months and is unlikely to return to the stratospheric annual growth levels
registered in recent years. With the trade contribution to growth likely to dissipate over time,
the era of double-digit GDP growth may be nearing an end. The era of structurally-low inflation
has also passed – wage growth and a gradual liberalization of energy costs will contribute to
higher inflation. In the next phase of China’s development, we expect GDP growth within the
8%-9% range and CPI inflation in the region of 4-5%.
China’s demand for commodities yields unequal benefits
Despite the moderation in economic growth and a cyclical downturn in some sectors, Chinese
demand for industrial commodities will remain strong, with ambitious infrastructure plans
providing a solid base of support. However, China’s heaviest consumers of commodities -
including steel and aluminum companies, refiners and IPPs - are expected to face continued
margin pressure. With Chinese midstream processors facing price controls, Chinese demand will
bring greater benefits to leading global resource companies with privileged access to raw
materials and lower cost structures (and importantly, the ability to respond to clear market
signals). Unlike energy and industrial commodities, China is relatively self-sufficient in most
agricultural commodities. Good harvests and improved efficiency suggest that Chinese demand
will not have a major near-term impact on international grain prices.
Corporate performance: a mixed landscape
Chinese oil refiners and many power producers continue to experience heavy losses, reflected in
a 10.3% decline in second-half profits for centrally-administered SOE’s. Excluding oil and power
firms, profits rose 22.6% YoY in 1H08, compared to 30.9% growth in 2007. We expect second-half
results for listed companies to paint a similarly mixed picture. In the property sector, Chinese
developers have seen a sharp drop in sales. Going forward, we expect a shift in focus toward the
mass market and a gradual contraction in developers’ margins. China’s leading banks have
relatively low exposure to the property sector and have not seen a decline in asset quality.
Following a sharp market correction, a range of stocks in key sectors are now oversold – China’s
leading coal companies offer a prime example: share prices have shed 40% on average, despite
surging coal prices and unrelenting demand for China’s staple fuel.
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[此贴子已经被作者于2008-9-1 9:55:34编辑过]
squarekiss 金钱 +50 好文章 2008-9-1 10:18:32
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