Don’t count China out yet, is the message from the president of the Toronto-based Investment Industry Association of Canada (IIAC).
In his latest president’s letter, Ian Russell writes about his recent trip to the sixth annual Asian Financial Forum (AFF) in Hong Kong as head of the Canadian delegation. He outlines four reasons why conference participants anticipate between eight and nine per cent growth for China in 2013:
1. A strong export sector
The expected expansion of the offshore renminbi (RMB) market and the flexibility of manufacturing companies in China will help to strengthen the export sector in the coming year.
The RMB market is a recent innovation that allows foreign businesses to invest in China through RMB-denominated bonds, writes Russell. Speaking at the conference, the chairman of the China Securities Regulatory Commission said that in the coming years this market should increase ten-fold.
This new market will also create opportunities for Canada, writes Russell, as it looks for other financial markets with stable and vibrant currency and derivative markets to do business with.
Exports are also expected to do well, despite a recent decrease in production, writes Russell, because many companies have already moved into higher value-added manufacturing, which should offset rising domestic labour costs. As well, many companies are simply too large and dependent on its trained workforce to move quickly.
2. Domestic consumer demand from a growing middle class
The increasing demand of the 300 to 400 million people in China’s middle class for consumer goods will spur investment in manufacturing and service sectors, writes Russell.
As well as increasing output, this growing consumer demand will help to eliminate production and distribution inefficiencies in various sectors while also raising safety and security standards in industries such as food.
3. Controlled inflation and a calm in housing
The housing market in China has started to cool, writes Russell, and as a result banks are starting to lend again. As such, residential construction could account for 40% of fixed investment in China thereby boosting overall economic growth by a few points.
4. Spending stimulus
Even if the economy slides a little bit there is sufficient confidence that the government will take steps, such as stimulus spending, to help keep the economy afloat, according to Russell.
The AFF is a conference for the global financial business community to discuss and learn about developments and trends in the Asian market. There were over 2,000 delegates at this year’s forum in January.