My Diary 473 --- China to grow 8.5%?

Market Thoughts ---- China to grow 8.5%?

November 7, 2008 

With overnight IMF downgrading global GDP growth to 2.2% in 2009, we by its definition step into global recession (<3%)…One surprise is IMF maintains China growth in next year at 8.5%... Hum, that worth some thinking...

Here are some of my own assessments….Export is and will be dead anyway…then what is left…

1) Infrastructure FAI may be smaller than we think --- Local press reported govt plans to invest Rmb2tn in railway during 09-11 and Rmb5tn in water/roads during 09-13, which  however only implies total infra FAI growth of 29% for 09, virtually unchanged from past 5 yr avg at 27%. In fact, Infrastructure FAI is only 10% of total FAI & its growth from 14% in 08 to 29% in 09 would only offset 1/7 of the slowdown in FAI in real estate and manufacturing in 09…Thus I have no reason to be bullish on commodities sector.

2) Property Sector will not come back soon --- The most important thing to me is demand. Vanke yesterday says Oct sales -35% yoy to Rmb3.35bn, 5th decline in a row. I think clearly the measures introduced by government are not having much impact on improving sales, but focusing on putting money into the property buyer’ pockets…Continue to underweight the Property and construction materials.

3) China consumption growth is a big doubt now --- Latest channel checks on PRC dept stores by JPM and Cazenove indicated that tier 1 cities saw biggest fall in SSS to single digit in Oct, while tier 2 cities remain strong… Sell or short the sector as it is one of the crowded trade…

Ø PARKSON - Mgt disappointed by no improvement (but not deteriorating) in SSS growth since 2H… Indicating that coastal cities are facing more pressure whilst inland stores performed much better… Flagship stores' SSS growth slowed to mid-single digit so far this year;

Ø NWDS - SSS growth in general slowed to single digit in Oct;

Ø LIFESTYLE - Shanghai Jiuguang store saw SSS growth decrease to Hi single digits.

Ø GOLDEN EAGLE - Nanjing store SSS growth slowed to 8%. Yangzhou and Suzhou +51% and 35% on the back of special promotion.

Ø IN TIME - Not available to comment…anyway, I visited their SH store a few weeks ago, seeing light traffic flow…

Ø Pacific in Shanghai - Quoted from mainland press: offers 50% discount on fashion goods (largest ever discount over 10 yrs) to boost sales.

Personally, I will keep cautious on China’s growth story. As I discussed before, the global inventory adjustment brunt will be born by China during this Western consumer recession, which will not benefit domestic consumption as well as China’s employment and growth over the past 10 years was built on the top of US/EU over-consumption…Now it is time to pay for this single-ended growth model…