Investors should be far more concerned with China's increasing inability to boost global growth than the impact of a meltdown in the Chinese economy, says AllianceBernstein (AB).
In a recent economic update – Changing nature of China as a global growth driver – AB said that as a result of structural changes, China won’t be able to provide as much support for global economic growth.
AB Asian sovereign strategist, global economic research, Anthony Chan said growth drivers in China are changing, with the non-tradable services sector becoming increasingly significant.
“Global commodity traders and traditional manufacturers, who have had a large exposure to China’s old economy, have experienced a sharp deceleration in growth over the past year,” he said.
“Instead of worrying about some catastrophic meltdown in the Chinese economy, investors and businesses should be more concerned about the possibility that the same pace of gross domestic product (GDP) growth in China may no longer have the same sort of impact on the global economy as it did before.
“Economies and companies around the world that have become highly reliant on sales in China, especially in ‘old economy’ sectors, may be at an increasing risk of disappointment.”
Mr Chan said the services sector now accounts for almost half of China’s GDP in value terms. Further, the decline in the importance of the industrial sector is well pronounced – down to 36 per cent in 2014.
“Services are mostly non-tradable items and, in China particularly, many services are dominated by state enterprises or monopolies.
“This means that foreign companies and investors may not directly benefit from the sector’s relatively strong performance,” he said.
Regarding the commodity sector, Mr Chan said an improvement in housing investment growth is needed.
“It may improve gradually next year if the current combination of positive developments – solid sales, rapid inventory draw-down and a restraint on new supply among developers – helps to reinvigorate investment.
“Such a recovery should help commodity demand, but the scale of the upswing will be much smaller than in past experiences,” Mr Chan said.