Aktuelle Frage im Economics Forum:
„Wie beurteilen Sie den bisherigen Fortschritt der chinesischen Volkswirtschaft in diesem Jahr und inwiefern sollten sich Investoren auf ein mögliches „hard-landing“ Chinas vorbereiten?“
Current question in the Economics Forum:
“How do you assess the progress of the Chinese economy year-to-date and to which extent should investors prepare for a possible “hard-landing” of China?”
"Since the beginning of this decade Chinese authorities have been confronted with a new challenge: they not only have to keep the economy growing at a pace sufficient to insure the absorption of the continuous increase in the urban labour force, but they now have to do so by relying mainly on the progress of their domestic demand. To meet this challenge, the management of credit distribution both by banks and “shadow-banks” has been their main instrument, but given the rather under developed state of their financial system, this instrument has proven difficult to fine tune and has been used more in a “stop and go” fashion.
The recent deceleration in activity was largely due to credit tightening measures and the fear of too sharp a slowdown has led to some loosening measures. Still, continuous reliance on credit to fuel growth is leading to a huge debt accumulation and the fear of a “hard landing” is in part justified: even if growth remains at 7.5%, some of the loans made will turn sour and banks as well as bond-holders will have to take losses while weaker growth will make things much worse. But the risks for the global economy should not be overestimated: Chinese monetary authorities are moving rather fast on the learning curve and, being hardly indebted and owning large amounts of foreign exchange reserves, the central government has the capacity to step in and support a banking system that remains largely government owned."
"China is facing a multi-year rebalancing process away from an investment led growth model to one more reliant on domestic consumption. Ultimately, its policy decisions will determine whether the country has a hard landing or not. Our base case scenario remains in favour of a soft landing, but we recognise that the space for policy mistakes is very narrow and the consequences large given the systemic importance of the Chinese economy. We prefer lower, higher quality growth as opposed to higher, unsustainable growth. Chinese growth has remained resilient thus far as authorities have employed selective credit easing policies. Tensions in credit markets, as exhibited by the bond default earlier this year, should be interpreted as warning signs. Better transparency in savings vehicles and interest rate flexibilisation should provide a more efficient pricing of risk and help the orderly deflating of the current credit bubble."
"Following the publication of the famous “Decisions” in November last year, China has only made very limited progress in rebalancing the economy away from investment towards consumption. That said, given the magnitude of the post-2008 credit boom, expectations of a rapid transition were never realistic in the first place. Amid a handful of corporate defaults, distortions in economic figures due to the timing of the Chinese New Year, the (policy induced) slide of the RMB and low inflation prints, fears of a Chinese hard landing have continued to grab the headlines in the beginning of the year.
However, these warnings have proved premature once again. Economic data in second quarter were somewhat better thanks to targeted fiscal and monetary measures but the economy’s dependence on credit and investment is still uncomfortably high. It is absolutely clear that more structural measures will need to be implemented in order to get economic growth on a more sustainable footing. There’s no doubt growth will continue to slow down from the current 7.5% and there’s a good chance that this will occur faster than financial markets currently anticipate. But China’s current account surplus, limited external debt and (mostly) state-owned financial sector, make an imminent hard landing less likely. "