While much has been made of China’s slowing growth of late yet, when put into context against other developed markets the longer-term outlook remains favourable. 
China’s economy expanded at an annual rate of 6.9 per cent in both the first and second quarters of 2017 (exceeding the government’s target of “around 6.5 per cent”) dipping very slightly over the third and fourth quarters, and returning an annual growth of 6.7 per cent.
The firm growth rate came despite moves by the central bank to tighten up on mortgage lending and cool the property market.
Consumer spending is contributing a steadily increasing share of growth and net export dependence is now relatively limited. China is still a major exporter but, simultaneously, is also a substantial importer.
Yet, risks remain. Growth has been partly driven by the rapid accumulation of debt. According to the International Monetary Fund, no economy has seen as fast an increase in private sector debt relative to GDP as China; and the private debt/GDP ratio exceeds that seen in the US before the financial crisis – and is close to the level reached in Japan before its bubble turned to bust in the early 1990s.
Exchange rate management
One aspect of China’s successful economic management which receives less recognition is its stabilisation of the exchange rate.
In late 2015, China moved towards a greater emphasis on stabilising the renminbi against a basket of currencies. Prior to that, the emphasis had been on managing the rate against the US dollar.
That new policy has worked well: the index has indeed been stable, allowing an appreciation of the renminbi against the US dollar as the latter has generally weakened.
Stock market developments
That currency stability will help as Chinese assets become more widely accepted by international investors.
China’s share of global stock market capitalisation is currently 9.1 per cent but the market has a weight of only around 3.2 per cent in the MSCI AC World index.
The disparity is explained by the fact that China’s capital account remains largely closed, restricting the ability of investors to move money freely into and out of China’s markets.
That has led MSCI to represent only a small proportion of the full stock market capitalisation in their index weighting for China.
However, the proportion is likely to rise over time, as the development of systems such as Shanghai-Hong Kong and Shenzhen-Hong Kong Connect allow foreign investors much easier access to China’s A-share market via Hong Kong.
Our longer-term view on China remains a favourable one: that growth will be maintained at a strong rate, with the desired rebalancing; that the private sector will continue to take full advantage of new disruptive technologies; and the financial markets in China will become steadily more integrated with the rest of the world.
Mansfield Mok is portfolio manager of the New Capital China Equity fund. All views are his own and should not be taken as investment advice.