China Strategy:Miracle in the Mountains

Our visit to China’s fastest-growing province – Guizhou – reinforced our viewthat infrastructure investment will buoy China’s growth through next year’spolitical transition. We expect China equities to continue to recover from oversoldlevels and forecast 15-20% further upside. The scale of Guizhou’s infrastructurebuild is vast, and costly, with a strong political imperative behind it. “Build aRoad” remains China’s main approach to alleviating poverty, and after so manyyears of success, policy makers continue to lean heavily on this source ofgrowth. Structural reforms are nevertheless far more important for thesustainable development of inland provinces like Guizhou.