The big worry about China, is our reliance that their growth will help drive economies around the world out of the global recessionary cycle. So, if the assumption on this is wrong, how dire will the fallout and effect be on the Chinese and global economies?
The Chinese economy grew at a more muted rate in Q1 2012, with growth of 8.1%, down from 8.9% in Q4 2011 and lower than amalgamated economists forecasts of 8.3%. The figure where a soft landing is expected to transfer into a hard landing and potentially market crash is 7.5%
So, China’s economy is not heading for a major crash based on these indicators and many suggest will manage to engineer a soft landing. The concern being that the downward trend if not stemmed could fall below 7.5% before year-end and markets are more vulnerable to “what they fear” rather than “what is”.
There are many leading economists forecasting opposite scenarios – the optimists believe an engineered soft-landing will be achieved while – the pessimists believe the Chinese economy is heading for a crash.
The problem being if you research boom bust cycle, you’ll get thousands of articles and research documents on its history and if you research soft landing there are very few entries and no historic events. There’s never been a boom and a soft landing ever.
I believe the Chinese economy does not seem to have a problem with growth. I think there is a problem with credit underneath the growth. For international markets, in general, to regain confidence in the Chinese market which will lead to a sustainable rally, we will need to know what are these issues and how they are being dealt with. I think this will be dealt with on a piecemeal approach and once this is the case I believe we can move on. This coupled with issues in the banking sector (as credit is uncertain) make a compelling argument that a soft landing is unlikely. I also don’t believe a crash is expected, markets will pullback on a realisation if a soft-landing is not compelling but I believe the available funding and the wish of China’s officials will soften the hard-landing.
My contact details are :- email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan
welshmoneywiz 