Why growth in China is unlikely to slow too far

Wednesday, February 13, 2019

Key Points: China's economy is slowing but not collapsing as the services sector holds up. A further slowing is likely in the short term, but policy stimulus is likely to see growth improve in the second half, giving 2019 growth of 6.2%. Concerns about China's rapid debt growth are overstated given it reflects high (not low) savings. Chinese shares are cheap and attractive on a 12 month view, but expect short term volatility. Reasonable Chinese growth is a positive for the Australian economy. The housing downturn will dominate though, pushing the RBA to cut rates and this will see the $A fall further into the $US0.60s.


Scepticism about China’s economic success amongst (mostly western) investment commentators has been an issue for as long as I can remember. The current China worries mainly relate to slowing growth, high debt and the trade dispute with the US. China is now the world’s second largest economy and its biggest contributor to growth so what happens in China has big ramifications globally. This is particularly so in Australia as China is its biggest export destination. This note looks at the main issues and what it means for investors and Australia.

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