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Quick Thought Of The Week: Elephants

It didn’t take The White House too long to gloat over the news that China’s second-quarter economic growth was the slowest in 27 years. It claims that US tariffs imposed on Chinese imports was working.

Schadenfreude is an unsavoury emotion. It is not good to derive perverse pleasure from the misfortunes of others. It tends to be shown by people with low esteem… particularly children.

It is even worse when schadenfreude has been brought on by an ignorance of the facts.

Yes, it is true that China’s economic growth is slowing. After all, elephants don’t gallop. But the slowdown has been a central plank of the country’s rebalancing strategy – to shift its dependence on exports, which can be unpredictable, to consumer spending, which is more sustainable. How prescient.

In the second quarter, the Chinese economy grew at an annualised rate of 6.2%. The slowdown in the growth rate could continue. But the rate of descent can be managed through both monetary easing and fiscal stimulus.

Some say that China should just bite the bullet and allow the economy to slow abruptly. In other words, a hard landing. But it is unlikely to let that happen.

Instead, it is more probable that the People’s Bank of China could follow the blueprint of other central banks, namely, adopt quantitative easing (QE). That could mean flooding the Chinese economy with lots of cash by fair means or foul.

We should not underestimate the impact that QE could have on the Chinese economy. Retail sales growth in the April to June quarter has already come in at the fastest clip for almost a year at 9.8%.

That could bode well for consumer-facing companies. So, forget about the Sino-US trade war, which looks to drag on ad nauseum. Instead focus on Chinese consumers, who show little sign of losing their penchant to spend….

….Over a billion people with rising disposable income whipping out their wallets can be not only a powerful economic driver but a powerful driver for our portfolios.

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.