Investors urged not to overreact China’s GDP cut

The China Post news staff

Although the local bourse yesterday plunged on the remark made by Chinese Premier Wen Jiabao that China has set its gross domestic product (GDP) growth at 7.5 percent for 2012 instead of 8 percent as seen in past years, local securities market experts urged investors not to “excessively interpret” the slight GDP cut. Wen announced the slight downward adjustment of China’s GDP growth target for 2012 when delivering a government work report during the opening of the 5th Session of the 11th National People’s Congress (NPC) at the Great Hall of the People in Beijing yesterday. This is the first time for China to lower its annual economic growth target after setting it around 8 percent for seven consecutive years.

Wen’s remarks caused stock markets across the Taiwan Strait to tumble, with the weighted share price index of the Taiwan stock exchange plunging 109.7 points to settle at 800.74 yesterday. Nevertheless, Chen Chao-teng, chief investment officer at Schroders Investment Trust Taiwan, said that it’s unnecessary for investors to “over-read” China’s GDP growth reduction, as China’s ongoing 12th Five-Year Plan is aimed at achieving a transition from “quantitative” to “qualitative” development of the nation’s economic and social fronts. In other words, Chen continued, investors should observe whether the “qualitative” change will be conducive to China’s long-term economic development, instead of caring about the nation’s GDP growth figure. Following years of heated economic development, it’s quite important and healthy for China to properly and timely undergo a slow and qualitative change in economic development, according to Chen. He said that in the short term, traditional industries and the realty market that rely on higher economic growth to bolster their development may suffer more from the impact China’s slight GDP growth reduction for the year. There is no need for them to worry over the longer term, however, as the 12th Five-Year Plan will significantly boost domestic demand.

Meanwhile, Yu Wen-yao, a fund manager at Fuh Hwa Securities Investment Trust, said that Chinese Premier Wen Jiabao has made it a top government priority to “make progress while maintaining stability,” which, coupled with improving economic fundamentals, will make stock markets in Greater China gradually trend upward.

Yu continued by saying that bolstered by ample equity funds, the price indices of stock markets on the mainland and in Hong Kong have lingered at high levels. This, coupled with the gradual easing of the systematic risks seen in euro debts, will further boost confidence of investors in the stock markets of Greater China.