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Financial experts voice predictions for Year of the Dragon 
Monday 23 Jan 2012
 
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Editorial

Financial experts voice analyses and predictions for Year of the Dragon 


Power and Fortune. Two qualities that have become synonymous with China over the past few years and - if legend is to be believed - will continue to pave the way for the country’s growth over the next twelve months, for yesterday marked the first day of the Chinese New Year and the Year of the Dragon: a symbol of innovation and enterprise.

As with the culmination of any prosperous period, financial experts have been quick to voice their analyses of the economic situation and have taken advantage of the Chinese New Year to draw various conclusions and predictions for the world’s second most powerful country.

Speaking to The Telegraph this week, Executive Chairman of Templeton Emerging Markets, Mark Mobius drew attention to the local infrastructure market, explaining: “There is a lot of room for more infrastructure spending and the recent rail crash [Wenzhou, July 2011] highlighted that this is definitely required. Plus, there is still a big bottleneck in moving goods from cities to the coast, so more investment will be needed here.”

It is no secret that China’s astounding growth rate has slowed of late and this plateau has split financial analysts into two groups: those that predict a financial crash for the region and those who foresee a soft landing.

Mobius is of the latter belief, arguing: “Rising unemployment, wealth inequality and inflation are things that we have everywhere in the world, and many countries are faced with these challenges. But the Chinese government has shown its ability to make policy moves to attack these problems.”

While some experts believe that investment in the domestic market is vital to retain China’s strong economic position, others have noticed an increased interest from the Chinese population in the international real estate market.

London Central Portfolio (LCP) released a statement last week highlighting the swell in Chinese buyers of London property, Naomi Heaton, CEO of LCP detailing: “[Chinese investors] are showing a keen interest in prime London real estate because of its status as one of the world’s most developed and highest value property markets.”

Hugh Best, Head of Investment Management at LCP supports this conclusion: “Cash-rich Chinese buyers are looking at diversifying their property exposure from China. They love London; they can benefit from a strong Renminbi and cash in on their domestic investments at a time when Chinese real estate values are expected to fail.”

This growing interest in international property follows a dramatic spike in China’s construction of domestic real estate. Where once designs for glittering commercial towers and abstract civic centres appeared on an almost weekly basis, now soaring residential buildings and mixed-use facilities appear on the WAN Newsdesk with alarming regularity.

This shift has not gone unnoticed, as Edward Chancellor, an analyst at global investment firm GMO explains: “China has replaced the US as the largest contributor to global economic growth. This contribution has depended ultimately on China’s booming real estate market. It’s no exaggeration to say that Chinese property has become the most important sector in the universe.

“Yet a giant smog of unreality hangs over Chinese property. SocGen calculates that over the past decade China has completed 16bn square metres of floor space. This is equivalent to building Rome every two weeks. This construction boom has resulted in vast ‘ghost cities’ across China.”

Whether the country continues to pour money into its own architectural development or shifts its investment overseas we can only wait and see, but one thing is for certain: this is only the beginning for China.

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