China’s current economic reorientation may mean weaker growth, but it also brings the possibility for longer-term stability and positive reforms, according to a JPMorgan portfolio manager.
“China’s economy is undergoing a slowdown, but in terms of real GDP growth year over year, it’s not going over a cliff,” said Emerson Yip, the lead portfolio manager for JPMorgan China Region Fund (JFC), on a call with investors Thursday.
“China will sacrifice some headline growth in order to focus on deleveraging and reforms,” Yip explained, since the country’s leadership views “quality and sustainability as [its] overriding objectives.”
China’s exports and imports unexpectedly rose in April, according to several news reports on Thursday. Overseas shipments increased 0.9% from a year earlier. Imports gained 0.8%, giving the county a trade surplus of about $18.5 billion.
The country’s adjusted export growth improved to 6.7% in April from 3.5% in March. Exports to the U.S. rose 12%, according to Bloomberg data, while shipments to the European Union expanded 15.1% and to South Korea by 13.5%.
Still, economic growth is slowing down, as it has been since 2007. While the country’s 10-year average GDP growth rate is 9.9%, GDP growth was 7.7% last year. It is expected to be 7.5% this year, JPMorgan analysts say.
“We say you want to look at slowing growth as a time to pick up winners,” said Yip, “as a sustainable economic-growth pace is sought.”
What’s happening in the country’s economy?
“China is transitioning from being the world’s factory to being the world’s consumer, with longer-term implications,” Yip said during a question-and-answer period with investors. The country has been exporting deflation, he adds, and will eventually export inflation — “but that is years away.”
“In the long term, China’s rise should benefit everyone, including its reforms and sustainability objectives,” the portfolio manager added.