BEIJING: Spreading jitters of an abrupt halt to Chinese growth are likely to prove as misplaced as concerns earlier this year that the economy might boil over.
That the economy is slowing is not in dispute. Nor should it be a surprise to markets: there has long been a solid consensus that first-quarter gross domestic product growth of 11.9 percent from a year earlier marked a cyclical peak.
"However, it is more likely to be a soft landing than a hard landing," said Zhang Xiaojing on Wednesday, June 30, a macroeconomic researcher with the Chinese Academy of Social Sciences in Beijing, a leading government think tank.
Zhang said he expected growth of about 10 percent for 2010. "It is basically impossible to see GDP growth of lower than 9 percent this year," he said.
Many China-watchers argue that the slowdown is no more than was to be expected given the steady withdrawal of monetary and fiscal stimulus after last year's record credit splurge.
Tough measures to cool the all-important property market; steps to curb risky lending to over-borrowed local governments; and uncertainty about global demand, especially from the debt-stressed euro zone, are also putting the brakes on growth.
The Organisation of Economic Cooperation and Development's Composite Leading Indicator for China, which has a good track record of predicting factory output about six months later, peaked in November and has dipped every month since.
The index remains, however, above its long-term average.
Mark Williams at Capital Economics in London said the economy had been slowing sequentially -- from one quarter to another -- since mid-2009 and that a low base of comparison had flattered year-on-year GDP growth performance.
The firm's own China Activity Proxy points to a year-on-year growth rate of about 10 percent when second-quarter figures are released on July 15.
"This would be consistent with a soft landing, while the fears that aggressive policy tightening will prompt something harder remain overdone," Williams said in a note to clients.
LESS ROOM TO OUTPERFORM
Those fears do persist, however, and were cited in some news reports as a reason for Tuesday's sell-off in global stocks.
Moreover, concerns will be fanned if Thursday's official Purchasing Managers' Index eases for a second month in a row, as forecast in a Reuters poll.
Premier Wen Jiabao captured the uneasy mood, saying the setting for the economy was complicated. But he said the economy overall was headed in the right direction and pledged to stick to the current macroeconomic course.
Michael Buchanan, chief non-Japan Asia economist at Goldman Sachs, remained very positive on China beyond the near term but said he believed the sequential slowdown now unfolding -- and yet to show up broadly in the data -- would be more severe than expected.
"There is thus much less room left now for further softening to still leave growth above trend," he said in a report.
Goldman's central case is that a surge in public housing CONSTRUCTION [] will take up the slack from a weakening private residential market, but it sees a risk of a larger hit to growth if the government does not take over the baton in timely fashion.
BNP Paribas lowered its 2010 GDP growth forecast this week to 9.8 percent from 10.5 percent, while HSBC told investors to brace for weaker economic figures as policy tightening bites.
"However, this is a just slowdown to a more sustainable rate rather than a meltdown," economists Qu Hongbin and Sun Junwei told clients. Domestic demand would sustain growth at a 9 percent pace in the second half of 2010 and in 2011, they said.
Ting Lu, Bank of America Merrill Lynch's China economist, has no plans to cut his GDP growth forecasts -- of 10.1 percent for 2010 and 9.0 percent in 2011 -- despite the headwinds.
"We don't expect a crash of investment and GDP growth. And we believe markets could overreact to bearish news at some point this year," he said. - Reuters
That the economy is slowing is not in dispute. Nor should it be a surprise to markets: there has long been a solid consensus that first-quarter gross domestic product growth of 11.9 percent from a year earlier marked a cyclical peak.
"However, it is more likely to be a soft landing than a hard landing," said Zhang Xiaojing on Wednesday, June 30, a macroeconomic researcher with the Chinese Academy of Social Sciences in Beijing, a leading government think tank.
Zhang said he expected growth of about 10 percent for 2010. "It is basically impossible to see GDP growth of lower than 9 percent this year," he said.
Many China-watchers argue that the slowdown is no more than was to be expected given the steady withdrawal of monetary and fiscal stimulus after last year's record credit splurge.
Tough measures to cool the all-important property market; steps to curb risky lending to over-borrowed local governments; and uncertainty about global demand, especially from the debt-stressed euro zone, are also putting the brakes on growth.
The Organisation of Economic Cooperation and Development's Composite Leading Indicator for China, which has a good track record of predicting factory output about six months later, peaked in November and has dipped every month since.
The index remains, however, above its long-term average.
Mark Williams at Capital Economics in London said the economy had been slowing sequentially -- from one quarter to another -- since mid-2009 and that a low base of comparison had flattered year-on-year GDP growth performance.
The firm's own China Activity Proxy points to a year-on-year growth rate of about 10 percent when second-quarter figures are released on July 15.
"This would be consistent with a soft landing, while the fears that aggressive policy tightening will prompt something harder remain overdone," Williams said in a note to clients.
LESS ROOM TO OUTPERFORM
Those fears do persist, however, and were cited in some news reports as a reason for Tuesday's sell-off in global stocks.
Moreover, concerns will be fanned if Thursday's official Purchasing Managers' Index eases for a second month in a row, as forecast in a Reuters poll.
Premier Wen Jiabao captured the uneasy mood, saying the setting for the economy was complicated. But he said the economy overall was headed in the right direction and pledged to stick to the current macroeconomic course.
Michael Buchanan, chief non-Japan Asia economist at Goldman Sachs, remained very positive on China beyond the near term but said he believed the sequential slowdown now unfolding -- and yet to show up broadly in the data -- would be more severe than expected.
"There is thus much less room left now for further softening to still leave growth above trend," he said in a report.
Goldman's central case is that a surge in public housing CONSTRUCTION [] will take up the slack from a weakening private residential market, but it sees a risk of a larger hit to growth if the government does not take over the baton in timely fashion.
BNP Paribas lowered its 2010 GDP growth forecast this week to 9.8 percent from 10.5 percent, while HSBC told investors to brace for weaker economic figures as policy tightening bites.
"However, this is a just slowdown to a more sustainable rate rather than a meltdown," economists Qu Hongbin and Sun Junwei told clients. Domestic demand would sustain growth at a 9 percent pace in the second half of 2010 and in 2011, they said.
Ting Lu, Bank of America Merrill Lynch's China economist, has no plans to cut his GDP growth forecasts -- of 10.1 percent for 2010 and 9.0 percent in 2011 -- despite the headwinds.
"We don't expect a crash of investment and GDP growth. And we believe markets could overreact to bearish news at some point this year," he said. - Reuters
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