After China’s National Bureau of Statistics Monday announced that the country’s economy grew 7.4% in 2014 — its weakest annual growth rate in 24 years — Rapoza writes that investors bullish on China need to be “willing to take short-term hits that might not always be good buying opportunities.”
“While us neutral-to-bullish China investors are the silent majority, this market is not the growth story it once was for equity investors,” he says. Rapoza points to declining investments by the Chinese government in infrastructure as the main reason for that country’s economic slowdown. Property investment growth also slowed, to 10.5% from 11.9%.
Many China fund managers are hoping the government will again stimulate the economy to help it achieve its 7.5% annual growth rate target for 2015.
“Investors may be left wanting on this one, though,” Rapoza writes. “China’s appetite for big stimulus packages is pretty much gone. Beijing does not yet see itself in a crisis. If they do, they are keeping it under wraps.”
After the Great Recession, the China government “pumped trillions into its economy,” which ultimately led to a credit bubble, “especially at the municipal level, where states competed for jobs and offered industrialists all sorts of financing to keep factories and developers working overtime,” he writes.
Between 2009 and 2013, Chinese banks loaned $14 trillion, but the country’s investment boom “is now buckling under its own weight,” Rapoza writes, citing a report by Patrick Chovanec, chief strategist at Silvercrest Asset Management.
Rapoza also quotes analysts at Japanese investment bank Nomura predicting China’s GDP growth for 2015 will come in at 6.8%, as China faces “domestic challenges such as tighter controls over local government debt, the property market correction and deleveraging.”