China: Slower Growth Doesn’t Mean Slow Growth | American Funds

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Global Growth | Emerging markets | April 2015

China: Slower Growth Doesn’t Mean Slow Growth

It’s the “new normal” … and now economic reforms are essential

Future growth will depend on the government enacting reforms

Chart highlights Toyota's returns for the last decade alongside changes in value of the U.S. dollar vs. yen.

Sources: IMF, Capital Group.

After three decades of tremendous expansion, China is entering into a period of more "normal" economic growth. But this slowdown needs to be kept in perspective: China is expected to continue to have stronger growth than the average OECD country.

Future growth will be largely dependent on the execution of reforms aimed at reducing investment and boosting services, which will allow China to have a smooth deleveraging cycle over coming years. Accelerated credit growth, considered a major threat to the economy in 2014, has showed signs of slowing, as has the growth in the shadow banking sector.

Throughout 2015 we should begin to see more substantial reform delivery, especially in state-owned enterprises and local finances. Anti-corruption measures are also likely to remain in place, which could continue to be a headwind to branded luxury-goods makers and casino operators.

Despite a slowdown in high-end spending, mass market consumption could continue to support overall growth. European and Japanese automakers and the Chinese internet firms could benefit from the evolving buying habits of consumers.

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