China: we remain concerned about the long-run outlook - Wells Fargo

Analysts from Wells Fargo, expect the Chinese economy to slowdown even further over time.

Key Quotes:

“Real GDP grew 6.7 percent in the second quarter on a year-over-year basis, unchanged from Q1 but surpassing the consensus forecast. Growth in the “secondary” sector, which combines the industrial and construction sectors, strengthened to 6.1 percent from 5.8 percent. The recent stability in the industrial sector appears to reflect renewed strength in Chinese exports. Moreover, consumer spending seems to have remained resilient as growth in nominal retail spending stayed above 10 percent in the second quarter. That said, growth in overall investment spending appears to have slowed further.”

“Although the equity stock market collapse last fall had many analysts worried about the economic health of China, the economy seems to have achieved a “soft landing.” Supercharged,double-digit economic growth rates are not likely in the foreseeable future due to continued deceleration in investment spending in China. Relative stability in the exchange rate and in the level of foreign exchange reserves in recent months suggests that the surge of capital outflows that occurred last year has slowed.”

“Looking ahead, however, we remain concerned about the long-run outlook for the Chinese economy. Structural issues, such as the Chinese government’s willingness to keep struggling state-owned enterprises afloat have the potential to weigh on productivity while misallocating capital to less dynamic firms. We expect Chinese economic growth to slow even further over time.”