Posted by: mulrickillion | December 18, 2011

Hard Landing Coming for China?


How hard might the landing be?

by Sam Baker, Dec 16, 2011 —

Policymakers may have hit the brakes too hard

The most recent macro data releases from China give rise to the strong conclusion that Chinese policymakers have unwittingly hit the monetary brakes too hard and thus the balance of risk has finally tipped slightly in the direction of a hard landing in 2012.

The odds appear slightly better than 1 in 2 – the definition of a hard landing for China being growth below 5 percent for two quarters. When a hard landing scenario finally plays out, the possibility is growing of an even bleaker outlook: 3 to 5 percent growth for a year or longer.

Time is of the Essence

The risk of a hard landing will continue rising over the coming weeks unless and until policymakers reverse course and implement aggressive and timely policy easing. Despite ominous signs of a sharp slowdown in growth evident in macro data releases and other select bank and financial sector data in the recent past, policymakers can probably kick the hard landing can down the road by six months to a year or so with an aggressive policy reflation operation. The question is whether they will.

These ominous signs include worse-than-expected Purchasing Managers’ Index results, a year-on-year decline in foreign direct investment in November, the first since 2009, a sharper-than-expected decline in the consumer price index in November, weak external demand reflected in slowing exports, a lower than expected growth rate of M2 in November, deposit and capital flight, and continued currency weakness.

Ability (Yes) vs. Willingness (???)

Chinese policymakers still retain what seems to be ample dry powder with respect to three main policy levers: monetary, fiscal and administrative, suggesting that they could hypothetically reflate economy (albeit temporarily) if they pulled out all of their policy stops right now. . . .

Asia Sentinel – Hard Landing Coming for China?


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