In his opening speech this week to the National People's Congress, Chinese Premier Wen Jiabao sent a strong signal that the government would focus more on the quality of growth than its magnitude, as he reduced 2012's official growth target from 8.0% to 7.5%.
Although this is the first time the government's growth target has been cut for seven years, the change was widely expected amongst market participants. Actual economic growth in China is only loosely correlated with the official growth target - it grew by 9.2% in 2011 for example - and we still expect to see expansion of between 8.0% and 8.5% in the Chinese economy this year.
What the change does mean, in our view, is that the government is prepared to accept a slightly lower pace of growth as the price of achieving a more sustainable balance between exports and consumer spending.
This policy shift has been widely trailed by the Chinese government in recent years, and this week's speech reaffirms the government's commitment to the harmonious development of the economy. With the pace of growth across many of China's traditional export markets still sluggish, particularly in Europe, we believe this is a prudent strategy.
Domestic consumption has been a long-standing theme across the China equity portfolios we manage. We believe the combination of pro-consumption policies from the government, stable demand and healthy economic growth has created a very supportive environment for consumer-related companies, although, as ever, careful stock selection will be essential.
We recently added some Chinese properties and materials companies across the China equity portfolios we manage, encouraged by what we consider to be very attractive share price valuations.
We have also invested in a number of jewellery retailers in anticipation of strength in the gold price, and continue to favour selected technology companies in the portfolio, where we see opportunities for them to benefit from the rise of China's middle class.
Agnes Deng
Head of Hong Kong China Equities
Baring Asset Management, London
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