China to see 50 pct growth slowdown as global cycle peaks
Morgan Stanley (AFX News)
Monday, March 8, 2004 3:28:51 AM
afxpress.com
BEIJING (AFX-ASIA) - The peak of the global growth cycle in the fourth quarter last year is likely to see China's economic growth slow by 50 pct, and most other economies by 30 pct, as the effects of the US consumption boom and the shift of electronics manufacturing to the mainland wear off, and as some central banks start raising interest rates to rein in asset bubbles, Morgan Stanley said.
Andy Xie, Hong Kong managing director, told clients in a note that despite widespread views that the current momentum in the G7 economies is set to continue, "the beta (equities) party that began in early 2002 is ending, the key portfolio decision in 2004 is to decrease beta".
He said that China is actively working to slow its economy, after a five-year acceleration peaked in the last quarter of last year.
Social stability fears are outweighing any desire on the part of the government to take short-term stimulus measures to support economic growth. Active steps are being taken to rein in credit, Xie said, with the growth rate of loans extended by financial institutions expected to slow to 12 pct by September this year. He said that capital inflows will be unable to supplement the lost bank loans, given that credit extended by financial institutions increased by 335 bln usd last year, compared to the 73.6 bln growth in gross foreign assets. The impact of this will be felt by other emerging economies, reducing the impact of low US interest rates, as Chinese demand for raw materials falls.
[KEY PHRASE: Chinese demand for raw materials falls - Mish]
"The growth acceleration among emerging economies in the past two years has much to do with China's booming property market," he said. Chinese growth momentum is key to the bullish call on Asia, Xie said, accounting for all of the export increases by Japan, Korea and Taiwan over the last four years, compared to 25-30 pct in the 1990s.
But with the bulk of these imports funded by credit, any tightening in China is likely to see this curtailed.
Property bubbles in the UK and Australia are fuelling rising interest rates in those economies which will in turn hit consumption as they counter the impact of low US rates.
The post-stimulus US economy -- driven by low interest rates and tax cuts -- is also set to slow as a weak labor market, and low income growth by extension, tempers the household consumption boom of recent years.
Structural changes are also likely to hit global growth. The gain from the shift of electronics manufacturing also peaked last year, Xie said, noting that one third of global industry has moved to China in the past five years. Until other industries, such as auto manufacturing, follow suit, "the gain from China trade would normalize to trend".
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