China's economy: is a hard landing imminent?

Updated On: May 25, 2011

With Goldman Sachs lowering its 2011 and 2012 GDP forecasts for China based on weaker manufacturing data, analysts are discussing whether it is a sign that China's economy is headed for a "hard landing" after strong growth in the wake of the crisis.

Analysis: China’s Economy: Flash! Ah-Ahh! [The Economist, 24 May 2011]

There are three key points on whether or not there will be a Chinese slowdown/”hard landing”. Overall, opinions seem mixed.

First, monetary tightening, commodity price inflation and wage growth have driven up manufacturing costs by 20-30%- the PMI is down to its lowest level since July 2010. The counterargument however is that this PMI level is still consistent with 9% GDP growth.

Analysis: The Three Signs We’re in the Midst of a China Slowdown [Business Insider, 24 May 2011]

Second, there are concerns about home mortgages and bad loans. The flip-side is that the bubble is not debt-financed, as homebuyers in China must make down payments of at least 30 percent.

Analysis: Prepare for an Attack of the China Bears [Wall Street Journal, 25 May 2011]

Third, China has suffered supply-chain disruptions due to Japanese earthquake. Estimates are that this has hurt the Chinese auto part component manufacturers, whose production contracted in the last quarter.

One interesting factoid is that in response to the expectation that China will be similar to Japan, South Korea and Taiwan in slowing down after 30 years of rapid growth, a BoA Merrill Lynch analyst argues that China’s surge started at a much lower level, and that China’s standard in 2011 is comparable to Japan’s in 1954, Taiwan’s in 1972 and South Korea’s in 1976.

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