China’s Volatile Economy – Where will China’s Surplus Cash go?

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It used to be said that when the United States sneezed, the rest of the world caught a cold.  Well, times change. If you want to catch an economic cold these days the infection is likely to come from the East and not the West. For all the much-vaunted partnership that BRICS brings, the focus of capital markets is not on Brazil, Russia India or ourselves, but on China, the only economy in the world to have posted GDP growth of more than 5% per annum for each of the last ten years.

It used to be said that when the United States sneezed, the rest of the world caught a cold.  Well, times change. If you want to catch an economic cold these days the infection is likely to come from the East and not the West. For all the much-vaunted partnership that BRICS brings, the focus of capital markets is not on Brazil, Russia India or ourselves, but on China, the only economy in the world to have posted GDP growth of more than 5% per annum for each of the last ten years.

So how real is this resultant wealth? How is it distributed and where is this growth coming from – organic or merely driven by inflated asset values?  A lot of capital has gone into overseas (for China) real estate assets, much of it in Australia, because of, amongst other things, the benefits of dealing with assets in the same time-zone as you.  Over the past year, Chinese domestic investment markets have become progressively less stable with the policy of making the yuan more liquid and the carnage in China’s stock markets in January being two indicators of what may become a long-term trend.

Overseas investment in property in South Africa has never been a major capital inflow; 6% at best even when the market was stronger than it is now. But foreign direct property investment has always been focussed on “trophy” assets, often in the R10m-plus range, so variation in investment intentions has a disproportionate impact on sentiment at the higher end of the market.
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