- The Chinese economy is structurally slowing
- For the short term, KKR lifts its GDP forecast
- China's economy is undergoing a massive transition
According to Henry H. McVey, Head of Global Macro and Asset Allocation at KKR, "A recent visit to China gives us more assurance that there is a base rate of economic growth that the government will - using a variety of monetary and fiscal tools - work hard to achieve in 2016, however, our bigger picture conclusion remains that the Chinese economy is structurally slowing, driven by disinflation, declining incremental returns, demographic headwinds, and the law of large numbers. How these transitions unfold have major implications not only for China, but also for a global economy that now relies on one country, China, for more than one-third of total GDP growth."
In his newest macro Insights, titled China: Mounting Macro Paradox, McVey discusses the following short-term and long-term investment conclusions:
- As it relates to the short term, we are lifting our 2016 GDP forecast for China to 6.5% from 6.3%. This change represents the team's first uptick in forecasted Chinese GDP growth since arriving at KKR in 2011.
- Longer-term, however, we do not think that the recent stimulus can help the Chinese economy to re-establish a higher sustained growth rate.
- Corporate credit growth remains outsized relative to GDP, which has implications for - among others - the country's banks, insurers, and brokers.
- There is no "One China" anymore, as the country's economy is undergoing a massive transition.
- To offset the slowdown in global trade and flows, China is also repositioning its export economy to take market share in higher value-added services.
- China Inc.: Coming to a theater near you. Without question, this trip's consensus view centered on the desire by many Chinese business leaders to acquire companies, properties, and experiences outside of China.
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