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Sunday 7 September 2008

The East powers ahead while America stumbles

Ian Cowie asks whether high-growth economies such as China’s are a safer bet than those of the debt-laden West

So there is increasing scope for these countries’ own consumers to take up the slack if shoppers in America and Europe take fright. Some of the most bullish analysis on that point comes from investors in China. Martha Wang, manager of Fidelity China Focus Fund, claims: ‘In the near term, the slowdown in America is unlikely to have significant impact on China. It may actually benefit China, by supporting the focus on more sustainable, domestically driven growth.... Long-term fundamentals in China remain intact and I look at periods of weakness as buying opportunities.’

Similarly, Philip Ehrmann, manager of Jupiter’s China fund, says: ‘In contrast to the well-trumpeted concerns about the weakened state of the global economy, China’s problems appear to be the reverse — too much growth. Exports have held up, while domestic activity has been robust. As a result, GDP growth for the year just ended is expected to exceed 11.5 per cent with inflation remaining close to an 11-year high. As a result, the Chinese authorities are continuing their tight monetary policy in an attempt to rein in excess liquidity. In this instance, however, it has been a question of preventing overheating rather than meltdown.’

So, when George Soros told the plutocrats at Davos last month that economic power was shifting from West to East, this was not so much the shocking revelation it was presented to be by the awestruck media, but rather a statement of an increasingly conventional view. Charlie Awdry, manager of the Gartmore China Opportunities Fund, summed it up: ‘Although the US is still the world’s largest economy, global dynamics have changed and the Chinese economy became the largest growth contributor in 2007. I believe that de-rating has been excessive in China, and not commensurate with the tighter monetary policy environment announced in December.’

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