China slowdown fears overdone

China's economy will slow less sharply than many commentators believe and will still boast double-digit growth following the Beijing Olympics, according to Resolution Asset Management.

Diamond Lee, manager of the £110m Resolution Asset Pacific Growth fund, says that, although private sector investment in China will tail off in the second half of the year due to corporate margin squeeze, economic growth will only slow to around 10-12 per cent. Some commentators have suggested growth rate could plunge as far as 7 per cent.

Although he expects property prices to undergo a correction later in the year, Lee believes that reconstruction investments will partly offset the slowdown in private sector investment following the damage caused by two natural disasters - a major snowstorm in the first quarter and an earthquake in Q2.

He also points out that China's inflation rate is, unlike most of the world, falling, with the energy component of the country's CPI basket much smaller than the dominant food element. With the prices of pork - along with its substitutes the most widely consumed meat in China - finally coming down as livestock numbers recover after a virus outbreak, Lee expects headline inflation to keep falling.

He says: "Some serial bears have been saying for years that growth in China will fall, but only now is there any truth in it, as there is likely to be a slight slowdown from its current white-hot level. But I do not believe growth will fall to less than 10 to 12 per cent, certainly not anywhere near the 7 per cent I have seen in some forecasts, with reconstruction effects boosting demand.

"China is unique in that its inflation is coming down while the rest of the world is seeing big rises. China's inflation cycle is simply different to the rest of the world."