SPECIAL REPORT: The end of a miracle

Over the next decade, China’s real GDP growth is predicted to be half its 10 percent average of the last decade, stoking debate among attendees at the PERE Summit: Asia in Hong Kong. PERE magazine, April 2012 issue

A forecast about China’s GDP growth on the opening day of the PERE Summit: Asia in late February was received by the more than 300 delegates in attendance with some trepidation and doubt and continued to resonate throughout the event.

According to Diana Choyleva, director at Lombard Street Research, China’s real GDP growth over the next 10 years is expected to average just half the 10 percent annual growth rate of the past decade. She explained how a reduced growth forecast would come directly as a result of China’s policymakers seeking to curb inflation, adding that slower inflation would create a “thin property market” with fewer transactions and make it hard to determine prices. 

“There was no way they could curb inflation pressures without bringing real GDP growth well below trend,” Choyleva said. “It already was well below trend in the fourth quarter, even though official numbers might tell you otherwise.” She blamed China’s excessive dependence on growth from exports, excessive saving by its people and mispriced state capital as the reasons why the country has found itself having to curb inflation.

On the sidelines of the PERE Summit, however, there was doubt about Lombard Street’s prediction. Charles Cosgrove, chairman of the investment committee of Hong Kong-based private equity real estate firm Arch Capital, was one person who remained unconvinced. He described Choyleva’s keynote address as “a view” and questioned whether firms such as his, which has a strong China focus, would use it as a “planning parameter” for their strategies. “As of today, it’s not the house view with us,” he added.

Those that entertained the notion of 5 percent GDP growth were not concerned either. “Tell the finance minister in Greece or in Spain that his GDP growth will only be 5 percent and see how happy he is,” quipped John Saunders, chief executive officer for Asia at MGPA.

Meanwhile, delegates also heard how reduced market competition, a wide spectrum of investment opportunities and cheaper borrowing costs have led to ‘one of the best opportunities’ to set up a team in Japan. “If you have a commitment towards Japan, now is one of the best times to set up a team,” said John Pattar, managing director at CLSA. “For the first time, you have high-quality resources at quite sensible prices. I’d seriously look at now as a chance to get some people or a team on the ground.”