Ask The Experts: Martin Lau: Cautious on China in 2012, Consumption To Drive Growth
Martin Lau, Director of Greater China Equities at First State Investments shares his outlook for China in 2012.
Martin believes the global economy will slow down in 2012, and China would not be an exception. Europe's debt woe will remain as the major theme, and with that backdrop, China exports and investments will continue to slow. In the long run, consumption remains the main driver of the economy.
Going into 2012, property price growth should slow as we're seeing a dramatic decline in transaction volume with government's restrictions regarding mortgages and first time home buyers. With government's proactive policies and the drastic increase in inventory, it is quite difficult to see property prices going up next year.
Typically bad debt happens when economy slows and property prices fall. Martin thinks that China's growth will slow down in 2012, so non-performing loans (NPL) can be one of the concerns. However, it is coming in as a drawn-out concern rather than a sudden breakout in next year, as history tells us that whenever banks have grown their loan books so much in 3-5 years, there will be a period when they have to suffer the consequences, such as high credit cost.
Martin believes that in the long run, consumption remains the main driver of the economy, but the trend will also slow down in 2012 taking into account the high base effect, slower economy, and a more sluggish property and stock markets. However, consumption contributes around one-third of China's GDP, there are room for further growth with the country's rising income level and increasing consumer leverage ratio. He is also bullish on gas consumption in China, as it is a structural growth story and is not entirely related to the economic cycle.
1. What's your general outlook for China in 2012?
2. Where is China's property market heading to?
3. Is China's bad debt concern going to heighten in 2012?
4. Which sector(s) are you bullish and bearish on?
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