China’s Economy Could Slow To Single-Digit Growth Over 5 Years

HONG KONG : Financial services firm JP Morgan said China’s economy could slow to single-digit growth over the next five years. However, the lender said the slowdown is not related to a post-Olympics hangover.

The staging of the Beijing Olympics cost China at least US$40 billion, according to some conservative estimates. No recent host city has spent even half that amount.

Preparations for the Olympic Games have seen scores of mega construction projects and new jobs created. But there are concerns that when the games end, the Chinese economic bubble may burst.

JP Morgan argued that China’s economic woes have little to do with the Olympics, which it said accounts for only 3.8 per cent of the country’s GDP.

Jing Ulrich, managing director & chairman of the China Equities team at JP Morgan, said: “Now, the Chinese economy has already slowed in the months leading up to the Olympic Games.

“But that slowdown has little to do with the Olympic Games itself. The slowdown in China has to do with the global economy, rising import prices and a slowdown in exports.”

According to JPMorgan, these negative factors could be offset by China’s ambitious infrastructure expansion plans.

The investment banking giant expects China’s GDP growth to range between 8 and 9 per cent, and inflation to hover around 4 to 5 per cent in the next five years.

JP Morgan also believes that things will improve and has recommended investors put their money in fundamental stocks.

“The leading banks in China will be relatively insulated from the credit problems elsewhere. Coal prices have gone up by 72 per cent so far this year, but share prices have gone down 50 per cent. What is going on? You talk to any buyers of coal and they will tell you, that supply is tight,” said Ulrich.

Although China’s economic growth is expected to head towards the single-digit realm, JP Morgan is confident the country will remain one of the brightest spots in the global economy. It said strong domestic demand will fuel robust growth over the long term. – CNA /ls

Channel News Asia

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