China beats Asian peers with 30% higher investment growth

It’s leading the pack in the region’s GDP growth.

According to DBS, China’s investment growth of $335bn in 2011 accounted for 42% of Asia-10 GDP growth that year. Put differently, China’s investment growth – investment alone – was 30% greater than all the GDP growth in all the other Asia-10 countries combined. Much of the higher GDP growth in Asia this year will be driven by China, where we expect growth will accelerate to about 9% in 2013.

Here’s more:

Faster growth there won’t derive mainly from faster exports to the US or Europe, although a small improvement in external balances will help. Most of the rise will come from domestic investment, where growth was about 30% below normal in 2012 (chart
below).

Some of the slowdown was intentional. China is attempting to shift to a consumption-led growth model and the structural shift implies less emphasis on investment going forward. But officials were also distracted by a once-in-a-decade leadership transition, high profile criminal trials and viral disputes with neighbors over offshore island territories.

The past year wasn’t much different from a lame duck year in other countries; many things get tabled until the new leaders come in. Throw in the biggest political purge in at least a decade and it’s no surprise that investment was as low as it was. Fixed asset investment seems unlikely to jump back to the 26% growth rate averaged over the past ten years.

But new leaders like to make a statement and a jump but halfway back to normal would add nearly a percentage point to headline GDP growth in 2013. That alone would lift GDP growth to 8.5%-8.75% in 2013, given the 7.8% now officially registered for 2012.

But it’s not all about domestic demand. We reckon better external balances will help lift growth too. Exports to Europe are no longer falling and exports to the US continue to grow at a modest pace. In sharp contrast to most media reports, exports have not been in dire straits for the past year.

As the chart on the next page shows, the slowdown in exports came way back in early-2011 and they have grown at a steady 10% trend rate ever since. In this light, the 14% YoY export reported for December deserved none of the hoopla and scorn that followed its release 8 days ago. In level terms, December exports were only a tad above the trend run since May-11. Neither cheers nor cries of foul play /data manipulation were warranted.