Michael Hasenstab: «Why It Is Not the Time to Panic About China»

Michael Hasenstab

Michael Hasenstab, Franklin Templeton

The first few days of 2016 have seen a return to the type of volatility global markets experienced in the third quarter of 2015. Franklin Templeton’s Global Macro CIO Michael Hasenstab believes many of these fears may be overblown.

On the whole, our view remains that underlying conditions in the Chinese economy are fundamentally more stable than markets have recently indicated, writes Michael Hasenstab.

We still believe that China’s policymakers have both the tools and the financial firepower to counter the recent slowdown and keep growth on track at 6% to 7%, which in turn we believe is sufficient to support global growth.

Short History

Over its relatively short history, China’s domestic stock market has been prone to extreme fluctuations, partly because it has been closed to international investors. And although China’s stock market still plays a relatively minor role in its economy, both as a source of capital for companies and as assets for households, its importance on both sides has increased.

While some observers feel the Chinese authorities may seek to engineer a substantial depreciation to boost growth through exports—leading to currency wars that may disrupt global growth and the global financial system—our view is different.

Moderation of Growth

We do not share the markets’ current pessimism over the trajectory of China’s economic growth. We view the recent moderation of growth in China as an inevitable normalization for an economy of its size; its nominal level of gross domestic product (GDP) is now five times the size of what it was 10 years ago. Thus, a lower rate of growth still represents a massive level of global aggregate demand.

In our assessment, the quality of growth in China has improved in recent years. Increasing labor costs and interest rates have put downward pressure on profits; however, higher wages boost consumption, which has increasingly become the anchor of Chinese growth; we estimate that consumption is close to 60% of GDP and rising. Additionally, new interest-rate liberalization policies can redirect capital to the whole economy, particularly the private sector, which we expect to be the future driver of growth.

In A Crucial Stay of Rebalancing

Overall, based on our analysis, we believe China will remain on course, with GDP growth decelerating moderately toward the 6% mark over the next few years while the economy shifts toward consumption, services and higher value-added manufacturing.

In short, China’s economy is in a crucial stage of rebalancing but we believe it is not at risk of collapsing. Some of the traditional engines of growth (manufacturing, real estate and local government spending) have stalled or contracted but new engines of growth (the service sector and a new generation of private sector companies) are taking over.

In Search of New Equilibrium

Although we may continue to experience volatility in the near term, we remain optimistic about China’s outlook as it searches for its new equilibrium.


Top stories from across the globe

  • Asia Pacific's Top Six Credit Risks For 2017
  • The 5 Most Shocking News in 2016
  • Hazel Moore: Banks Are Completely Wasting Valuable Customer Data
  • Morgan Stanley CEO Makes First-Ever Stock Sales After Bank Rally
  • Former Goldman's Partner in Boutique Venture
  • Hong Kong and Singapore in Push for Fee Transparency


finews.asia Networking Event

finews.asia Networking Event

Show pictures

stars China Symposium 2016

stars China Symposium 2016

Show pictures

Compare my salary

Compare my salary

Feeling Underpaid? Benchmark your salary by job title, company and location. Find out where you stand in minutes.

compare my salary


Newsletter-SymbolFree Subscription

Subscribe to our free newsletter and receive daily email alerts from the finews editorial team with a list of the top featured articles.

Share with us

Do you have any market intelligence to share with finews.asia – email us on info@finews.asia – All communication is completely confidential and strictly anonymous.