Our readers are upbeat about China’s economic prospects according to last week’s web poll. That suggests broad agreement with the analyst community, to be sure, but there is a growing band of voices dissenting from the consensus.
Indeed, close to a fifth of our voters say they are “expecting a hard landing” and more than twice that many are “cautious”. There is no definitive agreement on what would constitute a hard landing, or what it even means, but most people agree that GDP growth of anything below 7.5% would be hard to swallow, and below 6.5% would be a car wreck.
It therefore came as quite a surprise when CICC’s Peng Wensheng, chief economist at China’s biggest investment bank, said earlier this month that a Greek exit of the euro could send Chinese growth as low as 6.4% — though he is confident that the government will intervene before that happens, ensuring growth hits 8.1% for the full year.
The World Bank is also worried about a slowdown. It warned last week, in its half-yearly report on emerging Asia, that China needs to boost consumption at home to prevent dragging down the rest of the region.
“Fiscal measures to support consumption, such as targeted tax cuts, social welfare spending and other social expenditures, should be viewed as the first priority,” it advised.
Like CICC, the World Bank forecasts that China will sustain growth at a decent level and it remains optimistic for the region overall, especially when compared to Europe and the US.
However, even some of China’s top officials do not seem to share this confidence, judging by the number that have sent their children and their wealth overseas, providing an easy escape route if the worst should happen. Perhaps they know something that the rest of the world doesn’t.
Or perhaps the China bulls are kidding themselves. Doubters question whether the government has any good policy options left after its massive stimulus in 2008 and 2009 failed to create a sustainable pick-up in the growth of domestic consumption.
Electronics retailer Gome reported yesterday that its income slumped by almost 90% during the first quarter after the government’s consumption-boosting subsidies came to an end.
Another round of stimulus is hardly likely to be more effective, which could mean that China will simply create an even bigger problem for itself — even greater production capacity than it had going into the crisis, combined with weaker demand for its exports and levels of consumption at home that are still insufficient to bridge the gap.
Yet international investment banks generally remain optimistic. Indeed, it sometimes seems as though these foremost proponents of free-market capitalism have more faith in China’s Communist Party than they do in Western liberal democracies.
Perhaps Wall Street has already been occupied.