In the keynote speech of the 18th National Congress of Communist Party of China (CPC), a target was set for doubling both 2010’s GDP and average per capita income by 2020. Calculated with this goal, the annual economic growth in the next eight years can be lowered from 10 percent to 7 percent. This will result in China’s economy growing in an “L-shape.”

Economic slowdown is a most worrying thing, say some analysts. However, Jiang Chao, a macro-economic analyst from Guotai Junan Securities said, “‘L-shape’ growth might be more beneficial to the stock market”.

Pros and Cons of middle growth rate

To proceed with the set target, the fluctuation of economic growth is expected to become much smaller. The effect would be a weakened drive of investment and export on the economy.

Both the high growth rates of investment and export in the past depended a lot on the adequate money supply. M2 in October 2012 reached 93.6 trillion yuan, five times of that of 18.5 trillion yuan at the end of December, 2002.

The decrease of growth rate also means the falling down of future money supply, and companies will get fewer loans. It will thus slow down the growth rate of banks. Furthermore, it is likely that China will fall into deflation.

According to Jiang, it’s not all bad to have an economic growth of 7 percent. The secondary distribution of government intends to narrow the wealth gap.

Opportunity to the stock market

With a growth rate under the 7 percent, asset allocation would also change.

Due to a falling money supply, the bond market is likely to boom. There have already been some signs. On Nov. 14, the newly issued debt (excluding central bank notes) amounted to 6.97 trillion yuan, up by 8.74 percent versus 6.41 trillion yuan of the whole year of 2011.

According to Jiang, with the bond market becoming the main financing channel for enterprises, opportunities will be brought to China’s stock market as there will be no pressure of capital injection into it.