Beijing Olympics will strengthen investors perceptions of China

With the highly anticipated Beijing Olympics only two weeks away, the Association of Investment Companies, (AIC) has looked at the impact of the Olympics on the Chinese economy by collating the views of investment company managers with holdings in China.

In general, managers are positive about the future of China, believing that the Olympics will promote the country and its economy in an optimistic light. Moreover, managers believe that China is set to be the world's economic power house for decades to come.

The effects of the Olympics on the Chinese economy

The Olympics have certainly attracted new investments in areas such as infrastructure, transport and tourism. However, investment managers do not believe the games have boosted the Chinese economy to such an extent that it will be adversely affected once the event has finished and the hype has died down.

With concerns that post the Olympics the Chinese economy will suffer, Pinakin Patel, Pacific Client Portfolio Manager at JP Morgan Asset Management commented that: "the spending on the games amounts to less than 2.5% of China's fixed asset investment in any one year." He also believes that the Olympics will greatly benefit the city of Beijing and its future growth plans commenting that of the US $34 billion spent on the games, US $26 billion will be spent on infrastructure for the city itself.

This thought is echoed by John Millar, Manager of Martin Currie Pacific who said: "The Olympic games have provided a major economic boost to the Beijing region. The 2008 Olympics represents the second largest public works project ever undertaken in China. Beijing has spent US $34 billion to build the Olympic village, improve its transportation and telecommunication infrastructure, restore historic heritage sites and create a cleaner environment."

Peter Hames, Manager of Edinburgh Dragon Trust plc said: "The games in themselves are not a significant factor behind investors' interest in the country. Instead it is the phenomenal growth the economy has achieved, expanding at about 9% a year over the last decade, and its future potential."

National Pride

With the Olympics bringing millions of visitors to Beijing, it is an opportunity for the Chinese to show the world how much they have developed. Peter Dalgliesh, Manager of Pacific Assets said: "As far as the State Council (China's cabinet) are concerned, the Olympics is an opportunity to demonstrate to the world just what China can do and how far it has evolved over the past decade."

John Millar, Manager of Martin Currie Pacific added: "The forthcoming Olympics in Beijing will place the eyes of the world on China. As we saw with South Korea in 1988, such an event can have a major impact on the international perceptions of a country. As an investor, I believe the Olympics will be more a symbol of national pride than a genuine watershed for the Chinese economy."

The credit crunch

The managers believe that while China has not been immune from the impact of the credit crunch it has held up well.

Peter Hames, Manager of Edinburgh Dragon Trust plc said: "While China's economy has slowed recently due to the credit crunch, it will be a key driver for global growth for decades to come."

Pinakin Patel, Pacific Client Portfolio Manager at JP Morgan Asset Management notes that while China has not been immune to the effects of the credit crunch, the country has been able to withstand a fragile global economy commenting that: "China's exports to Asia remain strong which has helped offset the decreased demand for Chinese goods to the US, while European demand has remained stable."

Even though China's economy may be affected to an extent by the credit crunch and perhaps will be more so if markets continue to fall, Peter Dalgleish, Manager of Pacific Assets commented: "Due to buoyant revenue receipts last year, China enjoys a relatively rare position of being able to support the economy through fiscal pump priming if needed. Infrastructure and healthcare would be the most likely beneficiaries as the government could justify the expenditure as being part of its objective to achieve a more ‘harmonious society' ".