Market Analysis

(Still) No Chinese Hard Landing

Recent data suggest those fearing a “hard landing” in China should pause for reconsideration.

Ahead of next month’s 18th National Congress of China’s ruling Communist Party, fears have mounted their economy—the world’s second largest—is heading for a hard landing. (Fears that have circulated for the better part of the last three years.) But as we’ve said here and elsewhere, China’s leaders are incredibly incentivized to continue boosting growth using a variety of levers ahead of and after their upcoming leadership transition—as they’ve done in past “election” cycles. And while growth likely doesn’t return to the heady double-digit days of 2010 any time soon, looser monetary and more liberal fiscal policies seem to be stoking a perfectly acceptable growth rate.

Thursday, China’s central statistics agency reported headline GDP rose 7.4% y/y in Q3—largely in line with expectations but slightly below Q2’s 7.6% y/y pace. Although the lower rate marks the seventh consecutive quarter of slowing growth, it’s still growth. And China’s economy, while expanding at a slower year-over-year percentage clip, is building on a bigger base. That means China (in dollar or yuan terms) continues to add more to global economic activity than it did previously.

Through the first three quarters of 2012, Chinese economic growth clocked in at 7.7%—well off the 9%-12% rates of 2010—but still robust and well in reach of the country’s 7.5% growth target this year. More granularly, from the second quarter to the third, some estimates show the economy grew at an annualized rate of about 9%. That news, combined with several individual economic releases from earlier in the week, paint a picture of a far better economic situation than many fear.

For example, reports released Monday showed Chinese exports well ahead of expectations. Shipments rose 9.9% y/y—driven by increases of 6% and 25% to the US and ASEAN regions, respectively—easily beating 2.7% y/y growth in August. Money supply likewise rose much more than expected. M2 (broadly, money available for consumers to use in the economy and savings, etc.) rose 14.8% y/y, the fastest pace since 2011. This suggests various government efforts to speed capital flows throughout the economy may be working. And inflation was in line with expectations. CPI rose 1.9% y/y in September—a slight decline from August’s 2.0% y/y post. Benign inflation (especially so in China and among other Emerging Markets countries, which are used to inflation spiking to the high single- and even low double-digits) supports continued monetary accommodation. September industrial production picked up measurably, accelerating to 9.2% y/y over August’s 8.9% and topping expectations of 9.0%. Retail sales, too, accelerated to 14.2% y/y in September from 13.2% in August, easily beating expectations for 13.5% growth.

Even those skeptical of China’s official government data have pointed to other measures that still reflect growth—albeit not quite as robust as the headline GDP figure. Now, none of this is to say Chinese growth reaccelerates or even keeps up its pace from here—economies always grow in fits, lulls and spurts due to non-menacing factors like seasonality and sheer volatility. But certainly, none of this suggests an inevitable Chinese hard landing.

If you would like to contact the editors responsible for this article, please click here.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.