China's figures start to disappoint

With recent data confirming that a slowdown is underway, investors will need to find new reasons for investing in China other than growth.

All the numbers that have come out of China in the past few weeks ¨C whether they relate to GDP growth, corporate earnings, or the health of the manufacturing sector ¨C add up to the same conclusion: the Chinese economic machine is slowing. And it is happening faster than most China watchers expected.

The headline figure is GDP growth, which fell in the third quarter of calendar 2008 to 9%, its lowest since since 2003 and a steep decline from the second quarter of last year when it peaked at 12.6%.

GDP may be the number that grabs the most attention, but the earnings reports for the same period compound the picture of slow growth.

With a global financial storm in full force, earnings in the banking sector have attracted particular attention.

The energy sector ¨C including oil, gas, and coal ¨C was the only sector to provide good news in the form of margin expansion, according to a recent report by CLSA.

The other economic indicator that has raised eyebrows is the Purchasing Managers Index (PMI), which consists of factors such as inventory levels, employment, deliveries from suppliers and new orders.

Despite all the bad news spilling out from the mainland, BNP Paribas last week upgraded China to overweight on the belief that China will outperform the other large emerging markets. In the future, growth will play a new role, the bank argues.

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