Standard & Poor's Sees Positive Growth Prospects for China's Economic and Financial Markets, But Risks Remain

BEIJING, July 29 /PRNewswire/ -- In a forum held in Beijing today, Standard & Poor's global experts shared their economic and financial market outlooks for the rest of 2010, including the expectation that China's economy will remain strong despite some softening in the coming quarter.  

Economic outlook

Standard & Poor's forecasts China's GDP growth to lift to 10.3% in 2010. Dr. David Wyss, S&P's Global Chief Economist said: "Growth in China in the first half of 2010 was higher than expected due to domestic and external demand reviving nearly to pre-crisis levels. Recent monetary policy tightening and uncertainties in Europe will constrain the momentum, however."  

Dr. Wyss explained that while China's growth prospects remain strong, some softening is expected in the coming quarter, largely on the back of uncertainty in Europe, stimulus exits in developed economies, and domestic monetary policy tightening measures. He also discussed the sharp pick-up in property prices and inflationary pressures as additional risks to China's growth momentum.  

"For China, key constraints include education and capital. China needs high saving rates to create capital and improve educational systems and graduation rates to sustain the country's current growth," said Dr. Wyss.

Eurozone debt crisis impact on China

While China has important trade links with Europe, the impact of the Eurozone crisis on China will be manageable.  This is according to Mr. David Beers, Managing Director and global head of Sovereign and International Public Finance, S&P Ratings Services.

"Sluggish economic growth in the Eurozone over the medium term suggests that China's exports to the Eurozone are likely to grow slowly, which will depress China's GDP growth prospects a little," said Mr. Beers.  "Another key link China has with the Eurozone is with its banks. Chinese banks are expanding their international business and thus have many links with European banks. But China's exposure to the credit risks of European banks and the Eurozone sovereigns is relatively modest."

"Europe's problems underscore the fact that China and the rest of the world have a big stake in maintaining open trade and capital markets, and in resisting protectionist pressures," added Mr. Beers.

Global ETF trends

Standard & Poor's also shared its views on investment trends, including Exchange Traded Funds (ETFs) that are becoming an increasingly popular investment tool. According to Dr. David Blitzer, Managing Director and Chairman of S&P Indices Index Committee, global ETF asset value reached US$1,000 billion in February 2010.

"ETFs are becoming increasingly popular, providing explicit market coverage and transparency to investors around the world," said Dr. Blitzer. "As of February 2010, global ETF exposure consisted mostly of North American equities (40.5%), followed by fixed income (16.5%) and emerging market equities (15.2%)."  

"Indices for ETFs provide explicit market coverage and definition, replicate hedging efficiently and, most importantly, provide a transparent methodology for investors' easy understanding," said Dr. Blitzer.

S&P Indices has been present in China since 2004. It is working with several local asset management firms, including Bosera Asset Management, to use the indices as the benchmark for investment products to be offered to local investors.

About Standard & Poor's

Standard & Poor's, a subsidiary of The McGraw-Hill Companies (NYSE: MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research and data. With offices in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for 150 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit www.standardandpoors.com.

SOURCE Standard & Poor's