Enter the Water Dragon

Today, the Lantern Festival is mainly marked by many lanterns hanging in the streets and people sending off fire crackers. Migrant workers who visited their families in the Chinese hinterlands are now returning back to their work places in the urban areas.

So what can we expect from the Year of the Water Dragon? According to Chinese tradition, the dragon is a celestial, benevolent creature that brings you good luck. It originally represented the emperor, but today it represents power. As it is considered to be the best of all the zodiac animals, a baby boom is expected in China this year as many couples would like to have a dragon baby.

Studying Chinese horoscopes shows that the Water Dragon will lead to changes, adjustments, new directions and strategies. It is a good year to improve yourself, make calculated investments and build wealth. Traditionally, water represents money – most likely derived from the peasant culture where water is crucial for cultivating and getting a good harvest, or in other words more wealth. Thus the Water Dragon is supposed to bring us money this year, but many horoscopes also predicts natural disasters involving water, such as flooding, tsunamis and changes in the sea level.

The Lantern Festival marks the end of the Chinese New Year celebrations.

As for the economy, the Chinese astrologists predict that the Chinese economy will be strong this year, while the Euro zone will continue to struggle during the year, something that you might not have to be an astrologist to predict.

However, looking at more secular forecasts, most economic analysts do expect the Chinese economy to slow down slightly during 2012, but it will still show high economic growth compared with the turbulent global economy. The Asian Development Bank forecasts a growth at 8,8 percent, the IMF 8,2 percent and the World Bank 8,4 percent. The Development Research Center at the Chinese State Council puts its projections at 8,5 percent growth 2012. At East Capital, we expect the Chinese GDP growth somewhere between 8,2 and 8,5 percent this year, depending on how much Chinese exports are hurt by the global economic turmoil.

We also expect inflation to stay relatively stable at around 4-4,5 percent and promoting growth will be in focus for the Chinese government rather than controlling inflation, as I wrote in a previous blog post (link). China’s trade surplus is expected to shrink as Chinese consumption is to take off more following higher wages and restructuring in the economy.

Politically, 2012 will be an interesting year as it is the start of the leadership transition in China. We will closely follow the political development in China and the different persons and factions within the Communist Party making their way to the mighty Standing Committee of the Politbureau. So far we do not expect any groundbreaking changes in political development the next few years as the old leaders exit and the new leaders enter.