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Quick Thought Of The Week: Prosperity

China has managed down expectations for its economic growth this year. Premier Li Keqiang told the National People’s Congress that the Chinese economy would grow between 6% and 6.5% in 2019.

He also told the people of China to prepare for “a tough struggle”.

That should not have come as a massive shock to anyone. China’s economic growth has been on a downward path, anyway. In 2007, it was growing at a rate of 15%. But some 12 years later, the growth has slowed appreciably.

It could continue to slow, despite the best efforts of the Chinese government to cut taxes, trim interest rates and inject cash into the economy. This is Quantitative Easing, Chinese style.

Those measures could increase economic activity. It could even improve consumer sentiment. It might shock the stock market out of its torpor, which appears to be happening, sporadically.

But it is only going to delay the inevitable.

China’s debt-fuelled economy will continue to slow. But that’s alright. It must slow, just as any fast-growing economy must eventually mature.

Lessons from Singapore

Singapore was in the same position 50 years ago. I remember it well. At that time, many manufacturers flocked to the city state to take advantage of lower labour costs. But many of those companies have relocated elsewhere, where the cost of production is lower.

But guess what? Singapore’s per capita GDP has increased from around US$520 in 1965 to over US$57,000 in 2017. That’s an increase of 9% a year for 52 years.

Something similar is happening in China. In 1965, its per capita GDP was US$100. That grew to almost US$9,000 in 2017.

China still has a long way to go to catch up with Singapore. But it will happen. It is only a question of time.

From an investor’s perspective, we should not underestimate the impact of rising living standards in China. As the people feel more prosperous, they could also feel more confident, which is an important ingredient for consumer spending.

So, when looking at China, ignore the noise. Focus on the rising wealth of the people. That should lead you to some interesting investing ideas. Those ideas could come from within in China or outside.

A version of this article first appeared in Stock Advisor.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.