Further tightening measures from the People’s Bank of China

The People’s Bank of China has increased the amount of capital that banks are required to set aside for the eleventh time in just over a year. Lenders will be required to increase their reserve requirements from 14.5% to 15% from the 25 January. The move is in line with the pledge to take a more aggressive monetary tightening stance expressed in December 2007. It highlights the fact that the world’s fastest growing major economy is focused on containing growth, rather than managing a slowdown.

Meanwhile equity markets in Hong Kong and Shanghai are down from peak levels reached in October 2007. “As we enter 2008, “ says Charlie Awdry, Fund Manager of Gartmore’ s award winning China Opportunities Fund². “We have identified some cyclical headwinds driven primarily by slowing external demand as Western economies deal with the after-effects of US credit problems. However, more importantly, domestic earnings growth, which is the key focus of the China Opportunities Fund’s investments, remains strong, notwithstanding tighter monetary policy. We believe that the appreciating currency will boost domestic consumption and be of long-term benefit to the Chinese economy."

Some Chinese companies, such as those producing furniture and electrical equipment, are clearly exposed to slowing US demand. However recent research estimates that the export dependency within industries such as energy, drinks manufacturing and metals production is less than 1%.