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China’s GDP results reassuring says Chia-Liang Lian, manager of the Legg Mason Western Asset Asian Opportunities Fund

London, 13 April 2012 “The Chinese economy expanded 8.1% year-on-year in the first quarter of 2012 according to data published by the Chinese Government today. This is the slowest headline pace in almost three years, and less than the 8.4% predicted by market analysts. Still, given the recent downward adjustment of full year 2012 GDP growth to 7.5%, the outcome can be viewed an assuring outcome and should send the China bears back to hibernation.”

“Importantly, the current slowdown in economic momentum was not out of line with expectations, as it reflected the lagged effects of policy tightening measures over the past two years. With Chinese growth momentum poised for a cyclical rebound in the second half, Western expects China’s full-year 2012 GDP growth to come in at the 8% handle. There appears to be a sense of measured confidence amongst policy makers that the 7.5% GDP growth target is achievable. Indeed, some analysts believe the final outturn could surprise on the upside at between 8.0-8.5%.

“Despite some market worries of a Chinese hard-landing, our sense is that the authorities remain unperturbed and in fact welcome the growth moderation currently underway. Discussions on hard-versus-soft landing run into the issue of definitions. We would argue that the current “not too hot, not too cold” macro backdrop actually facilitates Beijing’s focus on longer-term economic reforms, emphasizing that reform efforts are the only way to ensure China’s growth sustainability over the medium-to-long term.”

“There is ample ammunition to cushion any fallout from exogenous pressure. Unlike many developed nations, China has both the willingness and ability to engineer policy easing. That said, unless GDP growth falls significantly below the 7% level, massive macro stimulus programs, like the one undertaken in end-2008 shortly after the Lehman collapse, appear unlikely for now.”

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