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China's Economy Not Slowing: Expert

Wednesday, 24 Aug 2011 | 1:59 AM ET

Despite China's Purchasing Manager's Index (PMI) data indicating that growth is cooling in the world's second-largest economy, one expert sees no slowdown and says fixed asset investment continues to be extremely strong in the country.

Traffic is seen on Dianmen Street in Beijing, China.
Getty Images
Traffic is seen on Dianmen Street in Beijing, China.

Wendy Liu, Head of China Research at the Royal Bank of Scotland, says a decline in the MSCI China Index since early August is due to global macro fears, but robust investments in fixed assets by new businesses as well as a retooling of operations by existing firms is powering domestic spending.

"For example, in the province of Zhejiang, what we understood is that 10,000 plus SMEs went out of business in the first half, but 50,000 more opened," Liu told CNBC.

She added that investment was flowing into new industries like technology.

HSBC's flash China PMI, designed to preview China's factory output before official data is released, edged up to 49.8 in August from July's final reading of 49.3. But that still left the index just below the 50-point mark that separates expansion from contraction.

Despite this mild slowdown in the pace of factory output, Liu is confident economic growth in China over the next two quarters will hold despite monthly fluctuations, future monetary tightening and a lack of stimulus from the government.

Based on studies done by some think tanks, Liu says if growth in the U.S. falls to zero percent this year, China's GDP growth will probably decline on a full-year basis by only 60 basis points. "So, [growth will] still [be] between the 8.5 percent and 9 percent range."

Liu also expects an "accommodating monetary policy " in the U.S. over the medium term.

"If there's too much easing, then you have this wall of hot money coming into China," she says. "If there isn't any easing, and [the U.S.] economy is bordering on recession, that's also destabilizing for the global economy. So I think we're looking at measured accommodation."

Liu is forecasting returns of 50 to 100 percent for the MSCI China Index from now through 2012, higher than the June forecast for an upside of 40 to 80 percent over the same period.