Is It Time to Get Off China’s Growth ‘Drug?’
China's gross domestic product data, due out Thursday, is likely to disappoint investors accustomed to double-digit growth rates from the mainland, however, experts tell CNBC that it's time to get off the growth "drug, " and adjust to the implications of economic re-balancing in the country.
"Markets are worried because they are still clinging on to those faster growth rates, but they will not come back. When GDP for the third quarter comes out — we think it will be 7.3 percent — a lot of people will be tearing their robes again, but this is the wrong reaction, " Dariusz Kowalczyk, senior economist at Credit Agricole, told CNBC on Monday.
"Seven (to) eight percent is the new normal, which is exactly where we are right now. It's also in line with the current annual growth target, which is why policymakers in Beijing are not worried, " he added.
Economic indicators released over the weekend including trade and money supply suggested a pick-up in domestic momentum, but the economy is forecast to have expanded just 7.3 percent to 7.4 percent in the July-September period — down from 7.6 percent in the second quarter, and below the government's annual target of 7.5 percent.
"We're all used to the drug of 10 percent growth and those days are behind us, " O'Neill said.
According to O'Neill, until the investment community readjusts its expectations to reflect the slower growth era in China, the country' stock market is unlikely to rally. China's stock market is the worst performing in Asia this year, down almost 5 percent since the start of 2012.
Martin Sorrell, chief executive of WPP, the world's largest advertising company, has told CNBC that slower growth is no surprise, considering the 12th Five-Year Plan, released in 2011, outlined a major shift away from export and investment led growth to a focus on private consumption.
"I don't think the Western media really understands the 12th Five-Year Plan: A lower rate of growth, but higher quality growth, " Sorrell said in mid-September.
While the slowdown in China has got investors worried, policymakers in the mainland have remained cautious about launching huge stimulus to boost the economy.
The People's Bank of China has held off aggressive easing, last cutting interest rates in July and the reserve requirement ratio for banks in May.
Low levels of inflation — with the consumer price index easing to 1.9 percent in September from August's 2 percent — have raised hopes of further stimulus, however, economists say policymakers are in no hurry to relax monetary policy.
"There's policy room for government to act, the reason that they haven't acted is because they still feel comfortable with the slowdown. There's no hurry to aggressively relax the policy, " said Shen Minggao, head of China Research of Citi Investment Research.
—By CNBC's Ansuya Harjani