China the 2008 investment driver?

China is set to become the new driver of global investments, according to a predictive analysis conducted by Mercer.

The Mercer analysis, released today, suggests that one of the key themes for 2008 will be China, and that while it has been a benign factor for Australian investors so far, this may change in the future.

“So far it has proven to be a benign factor for Australian investors in that it has boosted our stock market, lowered our inflation, contributed to a mining boom in Western Australia and helped our Government generate significant Budget surpluses,” the Mercer analysis said.

It said cheap production costs in China had helped lower global inflation and that Chinese purchases of foreign government bonds had helped keep down global bond yields.

“However, at some stage, as wage pressure and raw material prices go up, China may turn into an inflation exporter,” the analysis said.

“Similarly, if economic growth slows down tremendously in China, that will have repercussions for our economy,” it said. “For example, most of the recent resource price boom has been demand driven, while there has been relatively less elasticity in supply.”

Elsewhere in the Mercer predictive analysis, the company has pointed to continued demand for alternative investments and an increasing role for responsible investment.