China remains resilient despite slow growth weighed down by Beijing’s anti-inflation drive and low global demand. Urbanization continues and stronger domestic consumption is providing support. Thursday’s factory sector strength showed emboldened China bears. Cynics who foresee a sudden economic slowdown may have underestimated Beijing’s quick reaction in reviving growth in case needed. Inflation is seen to ease later this year which lessens new monetary tightening measure requirements, said analysts. Economist Stephen Green expects policy to relax as price pressures become restrained. International financial markets and commodities demand may be hurt should China slowdown but global investors remain unnerved. The Chinese economy grew at an average yearly rate of 10% for the last 30 years.
Fears that China’s economy is weaning increased due to weak data but for now, the world’s 2nd largest economy indicates resilience. To market watchers, hard landing in China’s term is dip in quarterly GDP growth below 8% the threshold needed to create enough jobs that would guarantee social stability. During the 2008 global financial crisis that threatened a slump, Beijing announced a 4 trillion yuan ($600 billion) stimulus plan. Double-digit growth quickly resumed. Economists said it caused inflation and uncontrolled lending and property bubbles that imbalanced the economy further and is now weak against a current ‘soft patch’. In case of 6% inflation in June or July, policymakers may again consider stimulus to be controlled in the 2nd half of 2011.
Economist Dong Tao said should hard landing threaten, expect fiscal stimulus rescue instead of monetary easing. Providing funding to policy housing and speeding up infrastructure projects would be the easy options, he said. China said it plans to build and upgrade 36 million cheap homes between now and 2015. Most economists remain positive and expect a 2nd quarter GDP growth of over 9%, same percentage for full-year. Beijing is really aiming for gentle growth easing and economist Kevin Lai said the slowdown is essentially part of the deal to reduce excesses and control inflation. U.S. economist Nouriel Roubini said because of over-investment, after 2013, China may deal with a meaningful probability of a hard landing. Investment is already 50% of China’s GDP.
Despite risks, there is no indication that China will explode. The country has managed to avoid crash predictions. ING’s Asia research head Tim Condon said China typically grows out of them, making good loans, the good loans finance the bad loans and eventually they write off the bad loans. Economist Andy Xie argued that there are no debt issues for Chinese households and most bank loans went to government projects. He said when a borrower is in technical default, it usually doesnt lead to asset seizure followed by liquidation, which is the cause of a hard landing. Usually, the government owns both lender and borrower and debt rescheduling is almost automatic. While money supply grows, it will be spent and turned into demand, added Xie. Still, analysts say China has to reduce its dependence on investment and exports and opt for financial reorganization to avoid risks.