CHINA'S economy is likely to slow sharply this year as the country's recent growth has been unstable and driven by credit and property bubbles, a senior Citigroup private bank executive said yesterday.
"Bubbles don't end well," global chief investment officer Richard Cookson of Citi Private Bank said at a briefing in Singapore.
He said China's economic rise has been fuelled by a "phenomenal" growth in credit. The bank calculates as a percentage of gross domestic product, total outstanding credit in China has risen by 60 percentage points in the last four years to 180 per cent of nominal GDP in 2011. As the lines of credit are reigned in, Mr Cookson said property prices will fall and growth decelerate.
The spectre of a sharp economic slowdown in China has troubled equity market investors in Asia in recent months. Recent data from the world's second largest economy have been less than encouraging, such as its November Purchasing Managers Index which showed a surprise contraction in manufacturing activity. Home price data from China Real Estate Index System also showed average property prices eased 0.25 per cent on-month in December -- the fourth straight month of decline.
The implications of this, Mr Cookson said, are profound for the Asia Pacific region. "It's going to mean some question marks for all the countries, such as Australia, that have relied very heavily on exporting stuff you dig out of the ground to China; and it means exports from the rest of the region into China are going to be dented," he said. This will lead to weakened Asian currencies against the US dollar and also the Chinese yuan, he said. In such a scenario, combined with an expected collapse in European growth, the bank believes Asian risk-sensitive assets will continue to underperform, in particular, Asian equities.
Chief investment strategist for Asia Pacific John Woods said at the same briefing despite the 20 per cent fall in Asian stocks last year, most of the bank's clients are sitting on the sidelines, "waiting for the knife to fall further".
He said the time to re-enter the market won't come until the macro issues in China, Europe and the US stabilise.
China to slow sharply: Citigroup's Richard Cookson | The Australian
Another doomsday economic forecast, too many in these two days. No more fortune teller, please.