[R-G] Chinese Growth Slows Sharply: What Is the Risk of a Hard Landing in China?

[Yoshie Furuhashi]

<http://www.rgemonitor.com/>
Chinese Growth Slows Sharply: What Is the Risk of a Hard Landing in China?

*  China's GDP growth slowed to 9.9% in the first three quarters of
2008, or about 9% for Q3 alone,  the fifth consecutive quarterly
deceleration and lower than expected. Jan-Sept 9.9% growth is the
slowest in five years and almost 2% lower than 2007 pace - Further
slowing is likely next year perhaps below 7-8%, a level at which China
will be unable to create new jobs

* In a country with the potential growth of China hard landing would
occur if the growth rate of the economy were to slow down to 5-6% as
China needs a growth rate of 9-10% to absorb about 24 million new
workers joining the labor force every year - macro indicators suggest
China is heading for a hard landing (Roubini)

* Industrial production continued to slow in September to 11.4% (12.8%
in August and 16.4% in H1) and PMIs suggest manufacturing is in
contraction. Urban Fixed Asset investment has slowed in real terms as
the cost of investment goods has appreciated.  Domestic demand
provided much of the growth momentum, with exports detracting from
growth (HS) Slowing housing sector, indicators like commodity demand
point to even slower growth ahead

* IMF lowered estimate to 9.7% growth in 2008 and 9.3% in 2009.
private banks are lowering their estimates for 2009 with some
expecting 8% (Morgan Stanley, UBS ) or lower (Credit Suisse 7.2%
StanChart - 7.1%)

* China likely to take further fiscal and monetary steps to promote
growth particularly as slowing inflation provides an opening. It
already cut interest rates, reserve requirements and loan curbs and
reinstated export rebates and announced more infrastructure spending.
Yet slowing fiscal revenue growth (3.1% in September) may limit fiscal
response.

* Chinese macro-economy early warning index stood at 105.3 points in
September, 2.7 points lower than August, dropping for four straight
months.six of ten components -industrial production, fixed assets
investment, import and export volume, profit of industrial
enterprises, loans of financial institutions, M2 and urban consumption
remained in the "green light zone" in September. But Consumer retail
sales and disposable income of urban residents were in the
slightly-heated "yellow light zone", while the fiscal revenue was in
the slightly-frigid "blue light zone".

* January-September export growth by value slowed to about 20%, down
from 28.9% in the year- earlier period and the weakest consumer
confidence since 2003 (SARS) may mean that consumer spending (retail
sales are growing at about 17% in real terms for the last four months)
is overstating private consumption outlook

* Wachovia: the recent slowdown in Chinese economic activity including
industrial production may be exaggerated somewhat by the shutdowns
associated with the Olympics, but the trend pace of Chinese economic
growth appears to have downshifted

* BNP: Growth in good exports lost steam in 1H08 in USD and volume
terms while commodity prices inflated imports -  shifting composition
of exports has increased vulnerability to lower external demand.
Exports, FAI and private consumption are all projected to post lower
growth in 2H08 and 2009. Private consumption may be hurt by lower
exports,  the lagged impact of the inflation hike of late 2007-early
2008, a softening labor market and falling stock prices -> But growth
expected to remain near 9%

* WB: China's economic growth has moderated to a more sustainable pace
in line with slowing global growth. Declining net exports are partly
offset by rising domestic demand

* MS: domestic demand is being supported by government policy to
cushion against an external demand slowdown . Should external demand
disappoint further, the government may step up spending on investment
to support growth

* StanChart: the era of double-digit growth in China may well be over
and export growth may continue to slow through the end of the year and
overall economic growth may continue to decelerate through 2009/10
after 9.5% growth in 2008

* Yu: with 24m people entering the workforce each year, China needs a
growth rate of at least 9%. China's twin threat of worsening inflation
and slowing export growth, both of which are surmountable, but
concurrent reforms (especially in the capital market) will ensure
adjustments in the country's economic structure for long-term
progress.

* ADB: Little evidence that China is rebalancing away from
investment-led growth, but it is shifting investment sectors. Risk of
entrenched inflation and overheating in some sectors

* Credit Agricole: Should global demand reacelerate in 2009, China's
trade surplus could widen, creating the risk of excess liquidity which
could trigger equity bubbles and even more inflation pressure

* Xie: China should increase infrastructure spending, slow
appreciation, and encourage consumption to hedge against hard landing

Nov 4, 2008
Associated Readings (15 Articles)

AnalysisFinancial TimesNov 03, 2008
Chinese alarm bells
AnalysisRGE MonitorNouriel RoubiniNov 04, 2008
The Rising Risk of a Hard Landing in China: The Two Engines of Global
Growth – U.S. and China – are Now Stalling
AnalysisCreidt SuisseNov 03, 2008
China the Growth Shock
AnalysisAMP CapitalShane OliverOct 21, 2008
China's Slowdown
AnalysisCitigroup Global MarketsKen PengOct 14, 2008
China: A Potential Return to Deflation
NewsXinhuaNov 01, 2008
Chinese consumer confidence index drops slightly in September
NewsBloombergKevin Hamlin and Li YanpingOct 19, 2008
China's Economic Growth Cooled to 9.9% in First Nine Months
AnalysisMorgan StanleyQing Wang, Denise Yam and Katherine TaiOct 22, 2008
China: Sharper-than-Expected Slowdown in 3Q08 on Destocking
AnalysisEconomist Intelligence UnitOct 21, 2008
China economy: Slowing down
AnalysisUOB Kay HianOct 21, 2008
What could the inside structure of China's slowdown be?
AnalysisStandard CharteredOctober 2008
Asia: Braving Crisis
AnalysisHang Seng BankOct 09, 2008
Mainland China's Monetary Policy Easing Begins
AnalysisBNP ParibasOct 06, 2008
The TARP has been approved, but the crisis is far from being over.
China: Rapid response to weaker growth
AnalysisGoldman SachsQ2 2008
China Economics Quarterly: Growth and CPI inflation moderated in
2Q2008, but inflation pressures remain worrisome
AnalysisAsian Development Bank March 2008
People's Republic of China: Economic Outlook 2008