AMP Capital head of investment strategy and chief economist Shane Oliver said although growth is unlikely to return to 10 per cent, it is expected to remain stable around 7.5 per cent – “no boom, but no bust either”.
Mr Oliver said one of the main concerns of investors bearish on China is that “rebalancing growth to consumption needs to slow”.
He said China’s investment share of GDP is overstated, however, and that its urbanisation rate of 50 per cent was much lower compared to Korea’s rate of 80 per cent.
He also said China’s level investment per person is around one third of US and German levels.
“Third, China has been able to grow strongly and avoid the inflation and balance of payments problems of countries like India, Indonesia and Brazil because it has invested a large share of its GDP,” he said.
“The bottom line is that claims that China is overinvested and too reliant on investment are misplaced.”
Mr Oliver said fears over China losing its competitiveness were also false.
“Chinese wages are rising rapidly but there is no evidence this is causing a loss of global competitiveness – rapid productivity growth in China, which is far stronger than in other emerging countries, is offsetting labour cost increases,” he said.
He also believes it is hard to “see a big direct global threat from problems in the Chinese shadow banking system”.
“China’s shadow banking system is only around three to four per cent of that globally, compared to a 37 per cent share for the US, and global institutions have very little exposure given low levels of gearing,” he said.
Mr Oliver said Chinese shares are trading on a price to historic earnings ratio of 11 and a forward PE of 7.5.
“This makes it one of the cheapest share markets globally and suggests good returns in the years ahead as Chinese growth remains solid,” he said.
