Schroders Parbrook: why China won't rescue the West

Surging credit to GDP ratios and concerns over property prices are two reasons why China will not offset any slowdown in the major economies, according to Schroders’ Robin Parbrook.

The firm’s head of Asia ex-Japan equities manager of the Schroder ISF Pacific Equity, speaking at the Schroder conference in Hong Kong, said there will be no major stimulus from China and that the country is not as decoupled from the global economic situation as many believe.

He said: ‘Everyone thinks China will rescue the West – but it won’t, it does not have the scope to print loads of money,’

The country has a credit to GDP ratio of 170% and although credit is growing at a rapid pace, it is not widely available to Chinese companies in the private sector, and is instead limited to state-owned firms.

Parbrook also expressed concerns over China’s soaring property prices, which have trebled in seven years, stating ‘property is definitely a bubble.’

He said: ‘What causes the property crisis is the over-supply; there could be a nasty property bust.’

Parbrook added the notion that China’s stockmarket is decoupled from the global economy is ‘a complete lie,’ as much of the index earnings come from global cyclical stocks.

He also said the MSCI China is a structurally unattractive index, dominated by state-owned enterprises which tend not to be big creators of shareholder value.

* Emma Dunkley is spending a few days in Hong Kong and China as a guest of Schroders