Chinese economic forecasts
It is difficult to gauge exact outcomes in terms of longer-term predictions for the Chinese economy, mainly due to the sheer size of the market. Much of the reaction to trade potential in the vicinity could justifiably be described as ‘knee jerk', leading to traditional markets being underweighted in most institutional portfolios. However, China will be enjoying the status of the primary long-term investment destination of choice due to the vast potential market. The Pearl River Delta alone, the biggest manufacturing region on the planet, offers a pool of consumers that western nations can only dream of, numbering over 450 million.
Chinese economists will be looking to whether or not inflationary concerns will be outstripping growth and employment as priorities for the nation. The monetary policy of China will impact the growth of internal economies, which will have a knock-on effect on marginal investment, as well as net capital flowing into the China markets.
Western speculators remain concerned about the longer-term impact of China's currency revaluation that will determine competitiveness and trade balances. Various governments are continuing to apply political pressure on China to take this step for one simple reason. It could seriously level the playing field for manufacturers, boosting profits throughout a range of the expectant industrialised nations waiting in the wings. Investors will also be paying attention to other emerging markets, as will the Chinese speculators themselves. There will always be a wider picture than just comparing the China to USA model.
The China currency issue is bound to have a major impact on capital inflows, so economists are being attracted to Chinese ren-denominated investments due to the potential or benefitting from unit growth in addition to the currency appreciation factor involved in any revaluation. If revaluation occurs in the near future, this may well provoke a sizeable windfall which could have the effect of dampening further interest.