Asia Briefing: Debate over ‘hard landing’ goes on as GDP slump continues


The debate about whether the Chinese economy will have a “hard landing” continues, with the more bearish among the analysts finding their views supported by a raft of downbeat data last week.

Chinese gross domestic product (GDP) growth has fallen below eight per cent for four consecutive quarters for the first time in 20 years, and the government says this is because after decades of breakneck growth, a different kind of expansion is on the cards.

Lombard Street Research has long been downbeat on the overall prospects for the Chinese economy, and believes that a downturn in China could have a powerful impact on the global economy.

“China’s exports were down 15 per cent between January and June, though one third of that may reflect distortions from round-tripping with Hong Kong. Real Q2 GDP on our estimation procedure could as well be down as up, and Q3 could be down too. The knock-on effects on the rest of the world are only just starting,” Charles Dumas wrote in a note.

China’s exports peaked in January of this year, and have fallen sharply since – by 15 per cent. The same is true, in more muted form, of imports.

“China is beginning to see the effects of both slow US growth and euro zone recession, compounded by its own overvaluation and Japanese competition, with Abenomics chiefly predicated on competitive devaluation,” he said.

Capital Economics chief emerging markets economist Neil Shearing and China economist Qinwei Wang wrote in a research note that they expect Chinese GDP to grow by 7.0 per cent in 2014 and by just 6.5 per cent in 2015.

“We think that last month’s cash crunch could be a sign that Beijing is serious about getting to grips with the structural problems at the heart of China’s economy. The result is likely to be a period of weaker growth,” they wrote.

They also believe that as well as registering a weaker overall pace of growth, the drivers of China’s economy are likely to shift.

“Investment, which now accounts for nearly half of GDP, will cool. Meanwhile, household consumption is likely to become more important. While this change is likely to take place over several years, it will have significant implications for the rest of the emerging world.”

UBS analysts still expect moderate exports growth this year, with growth largely staying in the zero to five per cent range in H2.

“On imports, we expect it to show more signs of life, as stabilising domestic investment demand helps support ordinary imports and commodity prices settle. The latest export data does point to increased downside risk to our current forecast for overall exports as well as for GDP in H2 2013,” UBS said.