Chinese Checkers

A team of experts from OMAM (SA) and Charles Wang, co-director of Research at Acadian Asset Management in the US explore the fundamentals underlying China's expansion and the likely global winners and losers from the country's continued forward momentum.

A recent fact-finding visit to China by Wang, took him through a diverse spread of the country's economic areas – from economically progressive cities like Beijing and Shenzhen, to the more provincial inland cities of Changsha in the Hunan region and, even, one of the areas in the country that is officially classified as "poor".

His first-hand observations during his visit to China confirmed global perceptions of the country's major economic trends.

China is undoubtedly experiencing development at a significant pace, a marked increase in standards of living, and a greater degree of economic and social freedom - as evidenced by the growth of the middle class and increasing social mobility.

These trends appear to point towards a China that is on track to enjoy continued economic expansion. The burst of growth over the past several decades has led to great improvements in economic structure and accumulation of skills and capital in various industries and regions.

World Trade Organisation obligations and restructuring in the financial sector will likely address the bottleneck for further growth and efficiency.

With abundant supplies of labour and capital, China is likely to enjoy something close to its current level of GDP growth in the years to come.

The country's challenge, however, will continue to be how to successfully address and rectify the growth imbalance, misguided economic incentives arising from political self interest, and a lack of transparency in the management of corporations and governments.

The latest tightening of China's overheating economy has been quite successful, as indicated by a slowdown in money supply, imports and fixed asset investment.

Such tightening, combined with selective monetary and administrative measures, is crucial for the health of the economy and is essential in allowing the required "catch-up" in much needed infrastructure and material investment.

This time around, China has successfully avoided the boom-bust cycle typically seen in rapidly developing countries and, after a brief pause, China's economy has once again accelerated.

The tension in the economy and the potential for overheating will always be a concern for investors and policy makers, though, and a pattern of high economic growth with periodic tightening and rebalancing is necessary for China to develop its economy without losing its forward momentum.