Brian Jacobsen

China: Landing, takeoff, or cruising?

AdvantageVoice® Blog—1-18-13
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

China’s gross domestic product (GDP) grew 7.8% in 2012. That’s the slowest pace since 1999. Despite the slowing growth, it’s still growth. There was also a growth pattern in 2012 when the growth rate declined until the end of September and then began to accelerate.

Throughout 2012, many people argued about whether China was experiencing a “hard landing” or a “soft landing.” That debate may seem a bit odd, since how can an economy be “landing” when it’s still growing? Shouldn’t the debate have been more about whether the economy was taking-off or approaching a cruising altitude?

The new leadership in China has a goal of improving the living standards of the rural poor. That’s approximately half the population, so it’s a big goal. I suspect we’ll see targeted fiscal stimulus over the course of the next few years to keep the growth of GDP high but to also change the composition of growth. Instead of just driving growth by exports and real estate investment, consumption growth and infrastructure expansion and improvement will likely play a bigger role.

A threat to the outlook for China’s growth is the growing tension between China and Japan over control of a few islands. Leaders from both countries appear to be raising the stakes. The U.S. will need to play a role in this dispute as the U.S. has pledged to defend Japan ever since the end of World War II. I think the dispute is one that is solvable, especially since—from my perspective—China and Japan, perhaps China more so than Japan, both have more to lose than to gain if a conflict breaks out.

The views expressed are as of 1-18-13 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.


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