Things happen fast in China, new cities and industries seem to appear almost overnight, now, it seems, even economic cycles happen faster there too.
In mid 2008, as the West's financial system crumbled and economic growth ground to a halt, the optimistic "experts" began to pin their hopes on an entirely new concept, decoupling. This theory was based on China's consumers, having none of the debt problems of the West, might continue to grow irrespective of the slowdown in the West. China would save us all and the disastrous effects of all the key players slowing down at the same time would be diluted by one enormous market (China) where profits were still growing.
Of course the fallout in the West was so enormous that even China could not defy gravity as their economy too slowed down rapidly, Power consumption fell, manufacturing slowed up, they wanted less of the raw materials that the West provided, and the decoupling dream was dead.
Recently though, signs have started to emerge that China might be about to turn the dream of decoupling into reality. Chinese markets have produced double-digit returns this year with the MSCI Golden Dragon index having risen by 14% since the New Year.
The most recent GDP data released by the government showed that China’s economy grew at an annual rate of just 6.1 percent in the first quarter of the year – its slowest rate since quarterly figures first came out in 1992. But whilst disappointing on the surface, the figures showed that growth accelerated as the quarter progressed. Industrial production growth hit 8.3 percent in March, up from 3.8 percent in the two previous months of the year. And in huge contrast to the West, China’s consumers are still spending (they haven't discovered credit cards and personal loans yet !) and the housing market picked up strongly. Asset investment also jumped 29 percent higher over the quarter.
THIS IS GOOD NEWS ! China’s rapid recovery should provide the possibility of strong returns for companies exposed to the country’s new growth drivers, although there will of course be short-term challenges.
For long-term investors, the trend is clear: the Chinese stockmarket is, like the rest of the country, in a hurry. It might just help to drag some of the western economies, and particularly their stock-markets, onwards and upwards.