The Olympic effect on China

By Ben Yearsley | 08 Aug, 2008 

With the eagerly awaited Beijing Olympic Games now upon us, a key question for investors is whether there will be an economic impact on the Chinese economy. Some of the initial impact has already been felt with many new Olympic venues being built with the Bird’s Nest Stadium in Beijing probably the most famous. In addition over seven million tickets have been sold to watch the games. Those visitors will obviously be spending a huge amount of money, providing a boost for the economies where events are being held.

According to JPMorgan, they don’t anticipate any short term economic benefit from the Games. After previous Olympic Games, economic growth was mixed. For example after the Seoul Olympics in 1988, GDP dropped from 10.8% per annum to 6.7% per annum in Korea, but after the Atlanta Games, the US economy did grow faster than before the Games. In other words there is no clear Olympic trend. One fact to remember is Beijing’s size, it does only account for approximately 4% of Chinese GDP.

One factor that has not been talked is the impact of many of Beijing’s factories closing down effectively for the month of August. This is being done to combat Beijing’s smog problem. If Chinese companies and factories have stopped producing, does this mean come September there might be a shortage of certain goods in the shops in the West? If there is, there could be a knock on effect of pushing inflation marginally higher.

Overall the impact of the Olympics for China should be positive. China is getting the opportunity to showcase itself to the world in a way that it hasn’t done before. Over the last 6-9 months the Chinese markets have been on a bit of a rollercoaster ride. The Shanghai composite index has fallen 37.9% over the last year. Over the long term I believe China will be one of the countries that investors will want in their portfolio but they will have to put up with the volatility over the short term. To see a list of funds we like that invest in China, please look on our Wealth 150 list.