China: Sharp Slowdown Ahead

A little early warning from Andy Xie in China.

Morgan Stanley

Andy Xie (Hong Kong)

The Chinese economy is likely to slow down sharply next year. It is now growing at the fastest pace in ten years. Electricity consumption has grown at 14.9% on average for the past five quarters versus an average of 7.9% in the 1990s. We believe that the economy will revert to normal growth rates next year.

We expect growth rates for the export and property sectors to halve next year. Exports have been growing at 30% YoY this year and could decelerate to 15% next year, as foreign direct investment decelerates. Commercial property under construction is likely to rise by 26% this year to 1,170 billion square meters. Inventory in the property sector appears to be rising rapidly and selling prices falling. We believe that this sector could grow by 10% next year at best.

Our current GDP forecast for 2004 is 7.8%. This is still compatible with our current view. We are marking up this year?s growth rate to 8.5% to be in line with government guidance. ...Article Continued