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| An investor at a securities company in Shanghai during the stock market rebound. Shanghai's benchmark index has risen by 23 percent since early December when it hit a four-year low of 1,949. AP Photo |
A moderate recovery
China saw GDP growth of 7.8 percent in 2012, according to data from the National Bureau of Statistics. Although that was the lowest level for 13 years and a decline from the 9.3 percent recorded in 2011, it was still far higher than that of many of the world's major economies, under siege by ongoing debt and fiscal crises.
The figure was also higher than the Chinese government's full-year growth target of 7.5 percent. It flew in the face of economists' assertions that the economy faced strong downward pressure. Some had predicted a hard landing, which now seems unlikely to happen.
Meanwhile, the NBS announced that the country's consumer price index, a major measure of inflation, was 2.6 percent in 2012, much lower than the government's target ceiling of 4 percent.
In light of the data, the past few weeks have seen a number of institutions release optimistic outlooks for the Chinese economy in 2013.
"The big picture is that China has avoided a hard landing and has engineered a gradual rebound in growth, starting in the second quarter of 2012. The strong mandate given to the new leadership of the Communist Party of China should boost confidence, and the new administration is likely to add to it by pursuing new development goals," said Dariusz Kowalczyk, senior economist at Credit Agricole SA.
Meanwhile, Qu Hongbin, chief China economist at HSBC Holdings PLC, said the country is likely to record economic growth of 8.6 percent this year, despite the uncertainty in beleaguered overseas markets such as Europe, a major destination for Chinese exports. That uncertainty is likely to present the country with a sizable challenge this year, but on the plus side, a rapid rebound in inflation is unlikely to occur.
"I am optimistic about the market, but yes, there are some potential risks," said Shaun Rein, managing director of the China Market Research Group in Shanghai.
One of the decisive factors will be whether the country is able to stimulate consumption effectively, he added.
In January, the NBS announced that consumption overtook investment in 2012 to become the largest contributor to economic growth. Domestic consumption accounted for 51.8 percent of GDP, as opposed to 50.4 percent from capital investment, while the "contribution" from net exports was minus 2.2 percent, according to the bureau.
That indicates that, rather than simply looking to quicken the rate of growth, the government has focused on restructuring growth and rebalancing the economy.
It seems that better days may be on the way after the new leadership pledged to stabilize the economy, push forward reform and economic restructuring, and remain open to foreign investment.
"The bear (market) is over," said Chen Li, head of China equity strategy at UBS Securities Co, predicting that the A-share market will rise a further 20 percent this year.
"The dynamic price-to-earnings ratio (a measure of equity valuation) for 2012 didn't decline. That's an obvious signal that the bear market is ending. And a small bull market is expected to arrive in 2013," said Chen.
Rein echoed those sentiments, "You've seen a bull market in the last month and a half. Actually a raft of data released by the authorities indicates that China's economy is doing all right."
Feeling bullish?
A healthy stock market would provide welcome relief to the army of demoralized investors, but it would also be a boon to many cash-strapped enterprises at a time when easy credit is a thing of the past. According to media reports, around 800 companies are in line to float on the stock market.
But unsurprisingly, a number of analysts and investors remain unconvinced that the market is ready for a massive revaluation, despite the improved economic fundamentals. They contend that the latest earnings announcements indicate little improvement in the potential for corporate earnings.
The average price-to-earnings ratio has already adjusted upward to more than 12 times from about 10 times in the past few months. However, further readjustment will depend on the projected performances of major publicly traded enterprises in key economic sectors such as property, finance, energy and telecommunications.
And that, according to analysts, is a big if.
"At this point, after the recent gains, we no longer think that Chinese equities are that cheap," according to Credit Agricole's Kowalczyk.
Although Chinese stocks remain attractive when viewed through the prism of price-to-earnings ratios, operating margins are relatively high, which increases the chances of a correction, and "our measure of the macroeconomic environment is not favorable either", he said.
However, not everyone is downbeat. "Economic recovery will continue. Macroeconomic policies are stable and the PMI purchasing figures have been positive. The new round of urbanization will expand consumption and investment. QFII and RQFII (qualified and renminbi qualified foreign institutional investors) will support market liquidity. The Shanghai Composite Index will run between 1,950 and 2,500 in the first half of 2013," wrote with Shenyin & Wanguo Securities Co analysts Jian Bijia and Chen Tong in a report in January.
Whatever the long-term result, the current situation has come as a welcome break from the long days of gloom and doom in 2012, when approximately 4.3 trillion yuan evaporated from the A-share market alone.
As long as the market doesn't slip back to those sorts of levels when trading resumes on Monday following the weeklong Spring Festival holiday, investors will feel that their stock is rising.
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