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Asia-PacificMarch 4 2008

BUSINESS MONITOR INTERNATIONAL REPORT: CHINA – WHAT IF WE ARE ALL WRONG?

BMI assesses the ramifications if China’s growth slows, and Deutsche Bank identifies a funding gap in microfinance.
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What will be the impact of China’s performance in 2008/09 and beyond? What will happen if the positive projections to 2012 go awry? This report tries to assess the threats, the vulnerabilities, the concerns faced whether from the environment, the banking sector, stagflation or whatever.

“Although the Chinese growth story is undoubtedly buttressed by very supportive factors, headwinds are building, and we are acknowledging significant downside risks to our growth outlook. Corruption and prospective protectionist measures from China’s central export markets in Europe and the US should also be noted. In the immediate term, ongoing inflationary pressures have been prioritised by the government, but we maintain that bank lending will become increasingly restrictive, with a rumoured 15% cap being placed on loan growth in 2008. Coupled with what looks to be a substantial US economic downturn, a potential Chinese policy mistake could have a deleterious impact on the growth outlook.”

The possibility that China’s growth could slow to 5%, for example, would have huge implications. The report may not have all the answers but it acknowledges an historic truth that economies do not always follow straight line growth.

DEUTSCHE BANK RESEARCH MICROFINANCE:AN EMERGING INVESTMENT OPPORTUNITY

Among all socially responsible investments, microfinance attracts institutional and individual investors due to its double bottom line. It allows investors to adopt a social investment strategy geared toward poverty alleviation and also offers an attractive risk-return profile.

This study takes a closer look at the role investors might play in the sector, which is in a transition process from a donor-driven non-governmental organisation-dominated framework towards an increasing involvement of capital markets. The sector has an estimated loan volume of $25bn yet it is unable to serve more than a fraction (about 100 million) of today’s sector demand of roughly one billion micro-borrowers. This situation, says Deutsche, translates into a huge funding gap of about $250bn.

Greater involvement of capital markets is seen as one medium-term priority. International public and private sector investors have more than doubled their investments from 2004 to $4.4bn in 2006.

The study sees microfinance as an emerging investment opportunity, evolving into a niche investment product and, “by 2015, we expect institutional and individual investments in microfinance to rise sharply to about $20bn.”

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