Fidelity bullish on China despite property bubble fears

Fidelity has maintained a bullish outlook on China, stating the Government has taken the necessary measures to curb a property bubble.

Fidelity portfolio manager Kate Howitt said China looked much the same as it did before the global financial crisis, apart from the monetary tightening to curb speculation in the property market.

She said the Chinese government was “tapping on the brakes” in an effort to tighten the availability of multiple mortgages.

Howitt said the measures were intended to rein in the enterprises that were starting to speculate in the property market even though their core business lay elsewhere. The Chinese government has tightened restrictions on pre-sales, introduced higher minimum down payments for second homes and made it tougher to obtain loans for third properties.

She said the tapping on the brakes could have a softening impact on Australia, but these measures have avoided a property bubble at the top end.

“The bullish theme for the global economy these days is still the industrialisation of China, but the trajectory was overheating. The Government is pulling it back to a more sustainable level — and that’s exactly what is needed,” said Howitt.

She said it was interesting that there was a negative reaction to these measures, when the outcome would have been far worse had that not happened.

Howitt noted that the Chinese government had a much higher focus on social housing, tripling its targets for social housing in the last year. She said it was still uncertain whether this would be played out in the short term, since the incentive at the provincial government level was still to maximise property values.

Considering the risks in China, she said there was a lot more debt in the economy — but it was still nowhere near the debt levels of the Western world.

“The Chinese Government is further down the track to making its transition from an export-driven economy to a consumption-driven economy,” said Howitt. “The Government has made a lot of strides in trying to put in place the social safety net to allow that to happen.”

She added that it was interesting that a communist government was managing its economy very well, while democratic, capitalist governments around the world continued to struggle.