News Analysis: British experts focus on China's long-term growth, reject worries

Experts here believe that worries over the current setbacks of the Chinese equity market and China's economic outlook are exaggerated and that there is still long-term growth potential in the cards for the country.

MARKET OVERREACTION

Mark Williams, chief Asia economist at Capital Economics, was critical of investors' reaction to China's equity bubble in an analysis piece.

"Investors are overreacting about economic risks in China. The collapse of the equity bubble tells us next to nothing about the state of China's economy," he said.

The Chinese stock market has suffered a setback which came after the release of weak economic figures and a depreciation of the Chinese currency, or Renminbi (RMB).

The benchmark Shanghai Composite Index closed 1.27 percent lower at 2,927.29 points on Wednesday. Two days before, it lost 8.49 percent, recording its biggest daily slump since February 2007.

"The surge in prices that started a year ago was speculative, rather than driven by any improvement in fundamentals," Williams said.

"Similarly, falling equity prices in China shouldn't be a cause of trouble in the wider economy or abroad. Only one in 30 people in China owns equities. Just 2 percent of China's equities are owned by foreigners," he said.

Anatole Pang, sector lead for financial and professional services at the China-Britain Business Council (CBBC), said in a statement that despite all the turbulence, gloom and speculation, "we are learning very little new about the China story from what we knew before."

Pang believed that the devaluation of the RMB was quite natural, but that it will of course have a knock-on effect as people want to exit RMB assets.

"China is entering a sustained period of slower growth -- the so-called 'new normal.' British companies need to plan for this, but equally recognize it is reduced growth in an enormous market, with ever increasing opportunities for British companies across many sectors," Pang said.

ROOM FOR POLICY ADJUSTMENTS

Williams stressed that actually, the recent data from China has been "more positive" than the headlines might suggest, with large parts of the economy still looking strong. He said that although the Caixin Manufacturing PMI has raised justifiable concerns, one shouldn't attach too much importance to this single indicator.

The Caixin Flash China General Manufacturing PMI retreated to 47.1 in August, the lowest point reading since March 2009, data showed last Friday.

Williams said that policymakers in China also have the "luxury of still being able to loosen policy if necessary" -- unlike their counterparts in many developed economies.

"Indeed, the government's own budget projections point to a sizeable boost from government spending over the second half of the year," he said.

Kamel Mellahi, a professor at Warwick Business School, believed the depreciation of the RMB was no great cause for concern.

"With 4 trillion U.S. dollars of bank deposits, China still has the financial firepower to alleviate market pressure," Mellahi told Xinhua, saying the government's reluctance to initially interfere agressively to calm the market suggests that China has finally decided to let the market forces play a bigger rolein deciding the value of the currency.

"China is concerned that aggressive interference in the market may sow the seeds for future problems, especially worsening the credit growth which is already high and could go out of control," Mellahi said.

In mid-August, the People's Bank of China (PBOC) announced the scheme of improving the RMB quotation mechanism. The Chinese currency's daily central parity quotes should be based on the closing rate of the inter-bank foreign exchange rate market on the previous day, supply and demand in the market, and price movement of major currencies.

LONG-TERM OUTLOOK

Stephen Phillips, chief executive at CBBC, was optimistic regarding China's growth.

"At current growth rates China's economy will grow almost three times as much as it did a decade ago in absolute terms," he said.

Given the background of China's "new normal" on economic evolvement, Phillips suggested that increasingly, companies need to look at China with "more granularity," as there are significant differences in economic performance between provinces and cities, as well in different sectors.

For instance, gross domestic product (GDP) growth decline does not mean consumption decline or even consumption growth decline; the CBBC expects consumption to form a larger part of growth in the future, he said.

The CBBC highlighted that in the longer term, China's "Road and Belt" initiative will see "new and exciting opportunities" emerge both within China and beyond, with revitalized trade and investment links through Central Asia and on to Europe.

The Silk Road Economic Belt, together with the 21st-Century Maritime Silk Road, commonly known as the "Belt and Road" initiatives, were proposed by Chinese President Xi Jinping in 2013.

The initiatives bring together countries in Asia, Europe and even Africa via overland and maritime networks, with the purpose of boosting infrastructure building, financial cooperation and cultural exchanges in those regions. The network passes through more than 60 countries and regions, with a total population of 4.4 billion. Endi