A recent visit to China by a boutique investment manager has revealed a disconnect between official gross domestic product (GDP) growth figures and the productivity of major industry companies.
The director of Private Portfolio Managers, Hugh MacNally, stated that the reality for a number of the companies he visited contradicted official GDP growth figures. The aim of the visit was to get a bottom-up perspective of the situation in China, and the visits to 12 companies revealed that they had suffered dramatically in the early part of 2009 as a consequence of the economic downturn. The production levels for the companies, which were involved in major industries such as steel, cement, electricity generation and port container movements, were sharply down at the beginning of the year, with economic growth “substantially below the levels of a year earlier”, MacNally said.
“I’ve been many times before and visited quite a number of these companies on a number of occasions. The complexity of the Chinese economic situation precludes any lightning visit to get an in-depth feel of how things are going,” he said, however, he added that they were able to get a bottom-up view of the economy and its implications for Australian growth.
He said even consumer staples sales were severely down and Linhua Supermarkets, a major supermarket chain that operates nearly 4,000 super and hyper markets in eastern China, recorded an absolute decline in sales early in the year with negative growth of more than 12 per cent in 2008.
“When you see [a] supermarket chain operating at negative growth, that’s a pretty severe reaction,” MacNally said.
However, he said the outlook for the coming year is positive.
“We think it has recovered very rapidly and in the way of recessions in emerging markets, which tend to bounce back pretty rapidly.”
The central government is pushing for large increases in production, which will translate into growth, he said. “And the stimulus has yet to take full effect — it’s going to be a multi-year ascent.”
The health of the Chinese economy feeds widely into many Australian businesses, either directly or indirectly, and “China is going to be the largest, single thing that drives the Australian economy for many years to come”, MacNally said.
