Christina Chung—head of Chinese equities at RCM, an Allianz Global Investors company—sees few signs of a hard landing in China, as inflation concerns have likely already been discounted by the country's equity market.

The latest figures show that China's GDP rose to 9.7% year-over-year in the first quarter of this year, meaning that growth was slightly higher than the market consensus of 9.4%, but slightly lower than the 9.8% in the previous quarter. For the first time in history, the Chinese National Bureau of Statistics (NBS) has issued a comparison with the previous quarter. It reports that China's GDP increased by 2.1% compared with the fourth quarter of 2010. By comparison, the GDP rose in the 4th quarter by 2.4% compared with the previous quarter.

The GDP in the fourth quarter rose by 2.4% compared with the previous quarter. Even if China's economic boom appears to be slowing down somewhat, the figures for industrial production and retail trade in March, which were also better than expected (industrial production 14.8%, compared with an expected 14.0%; retail trade 17.4%, compared with an expected 16.5%), point to continued strong growth in the country.

The inflation rate in March (5.4%) attracted much attention, rising more sharply than consensus estimates (5.2%) and more than in the previous month (4.9%). The growth in M2 money supply rose 16.6% year-over-year, and the new credit volume of 679 billion yuan also rose slightly in comparison with the previous month. In conjunction with the new record holdings of currency reserves of over $3 trillion, there is likely to be increasingly stronger revaluation pressure on the Chinese renminbi. In response, the Chinese Central Bank (PBoC) immediately raised the minimum reserve ratio by 50 basis points.

At this point in time, we see few signs of a possible Chinese hard landing scenario. In our opinion, the expected need for further interest rate moves to dampen inflationary pressure has probably already been discounted by the Chinese equity market.

Past performance is no guarantee of future results. The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts are inherently limited and should not be relied upon as an indicator of future results.

A Word About Risk: Investing in non-U.S. securities entails additional risks, including political and economic risk and the risk of currency fluctuations; these risks may be enhanced in emerging markets.

Gross Domestic Product (GDP) is the value of all final goods and services produced in a specific country. It is the broadest measure of economic activity and the principal indicator of economic performance.

Allianz Global Investors Distributors LLC, 1345 Avenue of the Americas, New York, NY 10105-4800, www.allianzinvestors.com.

AGI-2011-05-18-1037

 

 

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