China’s Soft Liftoff

For much of the last two years, a widespread fear was that China faces a sharp slowing in economic growth—a “hard landing.” Since China’s the world’s second biggest economy, proponents of the theory argued such a deep deceleration could have global ripple effects. As the story went, China’s heavily government-controlled economy wouldn’t respond to stimulus efforts this time, and that too much misallocated capital would cripple growth. Friday, economic data showed China is not without economic problems, but those problems don’t seem to be anything resembling a hard landing.

According to the Wall Street Journal, the head of China’s Statistics Bureau, Ma Jiantiang, addressed two relatively sensitive political issues during a press conference to announce Chinese GDP reaccelerated (more on that later). Mr. Ma stated there may be a need to review both China’s young-by-global-standards retirement ages of 60 and 55 for men and women, respectively, and, perhaps more interestingly, the nation’s one-child policy.

China’s one-child policy, much maligned as a reason for humanitarian offenses like the abandonment of children, is also causing the populace overall to age. And according to Mr. Ma, the combination of young retirement ages with the one child policy caused a rare decline in the working-age population in 2012—which fell by 3.45 million to a 937 million. Realistically, that number is still nearly three times as large as the US’s population, but the trend isn’t favorable. Policy reforms, therefore, have both a humanitarian angle and longer-term economic one. (Interestingly, Mr. Ma’s commentary on these sensitive subjects seems to not have reached the Chinese public.)

But while Mr. Ma was addressing long-term challenges, he was simultaneously throwing cold water on near-term fears. China’s Q4 2012 GDP grew at a 7.9% y/y clip, marginally exceeding consensus estimates of 7.8% y/y growth and accelerating from Q3’s 7.4% rate. The acceleration pushed annual growth to 7.8% for 2012—the first annual growth under 8% since 2000, but still ahead of China’s 7.5% target growth rate. And in the process, it seems the data don’t jibe with the widely feared, yet-to-be-seen Chinese hard landing.

Now, don’t get us wrong: If Chinese growth sharply slowed, there could be global growth consequences. After all, rapid development in the Emerging Markets has been a key catalyst and tailwind for global growth—and China is the biggest of the Emerging Markets by far. But data lately—echoed again on Friday—raise the question: Is this what a Chinese “hard landing” is supposed to look like?

The figures basically confirm that the vast application of both fiscal and monetary stimulus measures is bringing faster growth. For example, recent reports have shown sharply accelerating December exports and imports (which crushed estimates, growing 14% y/y and 6% y/y) and industrial production that’s accelerated in every month since August.

Still, though, skepticism seemingly abounds. Headlines warn that the acceleration may prove fleeting, or China’s outlook could easily downshift. Which it could. But that isn’t necessarily the same thing as a hard landing, which the last two years illustrate perfectly. The fact China didn’t log economic growth of 14% annually (as it did in 2007) didn’t cause global recession in 2010, 2011 or 2012—and it doesn’t seem likely to in 2013, either.

So while China certainly isn’t problem free, the reality is the problems posed don’t seem to include the widely discussed “hard landing.” In fact, the modest acceleration seems to better resemble a soft liftoff.