China Growth

2011 was the year the Chinese economy slowed to under 10% for the first time in a decade. The Chinese government is attempting to address this by instituting steps to stimulate the economy. The size of the Chinese economy precludes a sustainable return to 10% plus GDP growth. Structural growth of 7-9% makes more sense to us when looking at the next 5 years.

We also see a change in the composition of the growth rate for the economy. Chinese growth has been driven by infrastructure spending that was focussed on real estate and exports. The government’s latest 5 year plan has emphasized domestic consumption growth over export led infrastructure growth.

This has implications in the type of companies that will benefit from Chinese economic growth. While the capital equipment and commodity companies were the big beneficiaries of this investment led boom over the last few years, going forward it will be the consumer products companies that benefit most from this growth in consumption. Companies with strong brands that have been investing in China will benefit from this growth trend.