• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Spotlight>China Strong Long Term

Related Content

  1. Videos
  2. Articles
  1. How to Invest in a Slow-Growth World

    Panelists at the Morningstar Individual Investor Conference discuss how to position for profit amid anemic growth, energy volatility, the threat of inflation , and extraordinary central bank activity.

  2. Finding Value in a Challenging Market Environment

    In this special one-hour presentation, Morningstar experts share their takes on how investors can navigate a world with slightly overvalued stocks, an uncertain interest-rate environment, and a slow-growing economy.

  3. China's Perilous Rebalancing Act

    The investment-led economic model has run so long in China that transitioning to a consumption model could be very risky to the current system, says Morningstar's Dan Rohr.

  4. Vanguard's Davis: Get Ready for Lower Returns

    Vanguard's chief economist says the firm is projecting among the lowest U.S. equity expected returns since at least 2005.

China Strong Long Term

Fund managers give mixed reviews on China's short-term prospects but say problems are surmountable.

Sunny Ng, 11/30/2011

It's amazing how much things have changed. To be sure, the days of believing that China's robust economic growth and rock-solid fiscal position could bail out the economies in the West are clearly over. Morningstar equity analyst Daniel Rohr tackled the big picture of the problems associated with China's economic imbalances. Runaway inflation, a looming real estate and credit bubble, the shadow banking system, and rapidly declining exports are just some of the problems we think might plague the Chinese economy.

Headwinds

Scarier terms have rarely been associated with a single country:

Runaway Inflation
Inflation for August remained stubbornly higher than the targeted 4% for the year, coming in at 6.1%. The inflation rate has been on an upward trajectory since 2010. In particular, there is a fear that a vicious cycle of wages chasing prices and prices chasing wages will push prices ever higher.

Property Bubble
Driven by the rapidly growing middle class and population urbanization, Chinese property prices have risen by more than 140% since 2007 and as much as 800% in some major cities. Affordability, as measured by price to income, is five times the international average.

Shadow Banking System
In an effort to curb inflation and rein in credit, the People's Bank of China has raised reserve requirements seven times since January 2010 and imposed a quota on new lending by the banks (CNY 7.5 trillion; $1.18 trillion). These policies have limited regulated lending to all but the largest and most creditworthy companies. They've also created a host of unregulated lenders reportedly charging exorbitant rates up to 5% per month to smaller companies looking for credit. Some estimate the size of the shadow banking industry to be CNY 15 trillion ($2.4 trillion).

Declining Exports
The most obvious threat to the Chinese economy are declining exports fueled by the poor economic climate in Europe and the United States, wage inflation in China, and the upward pressure on the yuan (albeit only slightly because of strict government currency and capital controls).

©2017 Morningstar Advisor. All right reserved.