Erste Asset Management

China – the biggest economy in the world

China – the biggest economy in the world

The new normal

The importance of China for the global economic and financial system continues to grow at a rapid pace. Last year the country set a new milestone by becoming the world’s biggest economy. The total value of goods and services produced in a year exceeds that of the United States. Thus, at 30% China accounts for the largest contribution to global economic growth.


The goal for economic growth in 2015 is 7%. The most recent, disappointingly weak economic data suggest that this target may not be achieved. The Chinese economy has been going through a long-term process of transformation. Economic growth, driven by exports and especially investment and financed by very high credit growth, is currently being put on a sustainable basis. In the long run, plans are for both consumption and the service sector to account for the lion’s share of economic output, the way it is customary in a modern economy. This is the only way stagnation can be averted on medium income levels. Liberalisation is part and parcel of this process. The relevance of a state-planned economy will shrink for the benefit of a market economy. This process will be accompanied by the fight against corruption.


In order to prevent the intentional reduction of economic growth to sustainable levels and the legacy of the credit and investment boom (i.e. bad debt and unprofitable projects) from causing a “hard landing”, the Chinese government will countersteer in case of disappointing economic data. For example, in the past months the key-lending rates and the minimum reserve requirements have been cut, while the budget deficit has been expanded. The capital requirements for property purchases have been loosened as well.


The rise of China also manifests itself in the establishment of an own multilateral development bank, which many Western countries are also participating in.
In line with this scenario, the guidelines for capital movement have been thinned out, and the internationalisation of the Chinese currency continues. The renminbi may soon attain the status of full convertibility. Whether the Chinese currency will also be taken into the currency basket for the IMF currency, i.e. the special drawing right, further down the line only depends on political arguments.

Financial markets

The internationalisation of the renminbi implies that it is not in China’s best interest to participate in the global depreciation race. Also, the weight of Chinese equities and bonds in global indices will increase. This will support equities, even though the earnings development is currently negative. Another important issue, a reserve currency requires a large, liquid fixed income market. Given that the yields in China are clearly above those of other reserve currencies, a rising issue volume of Chinese bonds should cause no problems.



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This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.

The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the key information document is available, and any other locations where the documents can be obtained are indicated on the website A summary of the investor rights is available in German and English on the website and can also be obtained from the Management Company.

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N.B.: The performance scenarios listed in the key information document are based on a calculation method that is specified in an EU regulation. The future market development cannot be accurately predicted. The depicted performance scenarios merely present potential earnings, but are based on the earnings in the recent past. The actual earnings may be lower than indicated. Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance.

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