China should be ‘lucky’ to grow its economy at 2.5% over the long-term: pro

China will be “lucky” to grow its economy by 2.5% annually over the longer-term, according to Ruchir Sharma, Breakout Capital founder and CIO.

China introduces lowest growth objective in decades

As part of China’s annual meeting, outgoing Premier Li Keqiang guided the economy to grow near 5%. This represents the lowest target in decades which was blamed on the “many difficulties” facing the domestic and global economy.

Li said during the annual meeting “insufficient demand is still a prominent issue” while some local governments “face big fiscal difficulties.” Despite this, the government’s 5% growth goal is still far superior to the United States’ 1.4% and the United Kingdom’s negative growth outlook.

China’s 2022 growth ‘seemed way exaggerated’

Sharma spoke on CNBC’s “Squawk Box” segment, stating that China’s economy has been growing at a breakneck pace for 40 years, but its momentum has stalled. The drivers of growth that fueled the economy for decades have mostly vanished, with China’s population shrinking, productivity low, and external challenges such as restrictions and sanctions from Washington.

Beijing does intend to fight back against American hegemony, as reported by Invezz’s Shivam Kaushik, but Sharma doesn’t appear convinced this is a fight it can win. He added:

I think the Chinese economy on a long-term basis will be lucky to grow at half that pace – at 2.5%. I think 5% for this year is maybe OK because they are rebounding from a low base. But even last year they grew at 3% and that 3% number seemed way exaggerated.

China’s 2.5% best-case growth outlook for at least the next 10 years implies it will never “in our lifetime” outrank the US as the world’s largest economy, Sharma said.

Mark Mobius on China: be ‘very, very careful’

Coinciding with China’s depressed growth outlook, billionaire investor Mark Mobius said on FOX Business investors need to be “very, very careful” when it comes to investing in China. He said during the interview he is looking to increase his exposure to India and Brazil as China is “becoming more and more control-oriented.”

Anecdotal, Mobius says he is having difficulties in withdrawing his capital stored at an HSBC bank in Shanghai as the government is “restricting flow of money out of the country.”

Commenting on Mobius’ warning, China Beige Book CEO Leland Miller separately said on “Squawk Box” that China has always restricted capital outflow. He said:

It’s sort of amusing that Mobius is just now learning that China has a closed capital account. This isn’t new. Obviously, when things are bad, they enforce it a lot tighter than they do when they are bursting at the seams with growth.