FXstreet.com

Research Asia

0

0

China's growth miracle − is it sustainable?

Tue, Nov 21 2006, 16:19 GMT
by Thomas Harr, Niels-Henrik Sørensen

Danske Bank A/S


  • In this note, we attempt to make a judgement as to the sustainability of the Chinese growth model. We question whether China’s investment boom continue, or face the risk of a financial meltdown as we saw in Japan in 1990 and East Asia in 1997-1998? We also scrutinise whether China will be able to move further up the value chain, which is essential to maintain high productivity growth.

  • We argue that on a 10-20 year horizon corporate investment growth is likely to slow as the industry intensity of China’s economy falls. Moreover, household savings will fall in the long term due to: 1) a build-up of the social safety net; 2) financial liberalisation, and 3) the ageing of the Chinese population. But again this may be more of a 10-20 year story rather than something which will happen over the next decade.

  • The weak link in the Chinese economic model is the state’s interference in the lending decisions of the state controlled banks, and the lack of effective corporate governance - which implies that state owned corporations, may be investing inefficiently. The inefficient financial model is not a problem at the moment as the banking sector and the state-owned firms are effectively guaranteed by the state. But as the state loosens its grip on the banking sector, a crash cannot be ruled out.

  • What is ultimately driving the sustainability of China’s investment boom is whether China’s productivity growth will continue. China is still such a backward country in many ways, implying that if the reform process remains on track then the productivity catch-up is likely to continue for many years. One big risk is more severe backlash on protectionism. If the protectionist steps from the EU and the US broadens in scale it may slow down FDI. This could have a significant effect on China’s productivity growth.

Published on  Tue, Nov 21 2006, 16:32 GMT


Archive

Danske Bank  | Holmens Kanal 2-12, DK-1092 Copenhagen
http://www.danskebank.com/ | danskeresearch@danskebank.com

Legal disclaimer and risk disclosure

This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.


Interested in forex trading? forex brokerage firms!


ACM Advanced Currency Markets SA
Contact the broker/FDM
Open a demo account
MG Financial Group
Contact the broker/FDM
Open a demo account
MIG INVESTMENTS SA
Contact the broker/FDM
Open a demo account		Saxo Bank A/S
Contact the broker/FDM
Open a demo account		C.I.M Banque
Contact the broker/FDM
Open a demo account

FXstreet.com will give you a 3 months membership as soon as minimum rebates have been generated (€150 for private trader/ €300 for corporate trader)

[Read Premium full description]

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. FXstreet.com has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.

Any opinions, news, research, analyses, prices or other information contained on this website, by FXstreet.com, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXstreet.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

©2008 "FXstreet.com. The Forex Market" All Rights Reserved.