After reporting a stellar 11.3% GDP growth in the second quarter, China’s economy may be slowing, according to a forecast by the World Bank. China’s economy is estimated to grow 10.3% this year, driven by slower growth in the second half of the year. For 2007, the hot Chinese economy is expected to slow further, declining to 9.3%. A slowdown, but still quite robust by any standards.
So, in spite of the lower forecast, China’ economic growth will remain impressive. In fact, the decline will please the Chinese bureaucrats as there were concerns after the strong second quarter GDP growth and its potential impact on inflation and a bubble like economy.
China has been attempting to slow down the rate of the economic expansion but at the same time did not want to derail the country’s industrial boom. So far the strategy appears to be working. To this effect, the strategy has included marginally higher interest rates, tighter bank credit, and stricter regulations on real estate investment.
Make no mistake about it, China’s economy may be slowing but the projected growth there is still the envy of the world. On the other hand, as an investor, you also need to watch the slowdown as it could place some pressure on Chinese companies or U.S. doing business in China.
Chinese stock markets continue to do well versus North American markets. The Hang Seng Index in Hong Kong continues to trade near its 52-week high, up 22% from its 52-week high. The more volatile and risky Shanghai Composite Index is up 50% from its 52-week low.
As an investor, you need to have some investments in China either via American Depository Receipts (ADRs) trading on U.S. exchanges, Chinese-focused mutual funds or China Exchange Traded Funds (ETFs). Be wary of the small-cap Chinese wireless sector, which has been hit hard by policy changes. There are still vast growth opportunities in technology and industrial companies that will continue to benefit from the robust economic growth in China.