Roubini: Risk of Hard Landing in China

[Chomsky]

There is thus now a growing risk of a hard landing in China. Let us be clear what we mean by hard landing. In a country with the potential growth of China hard landing would occur if the growth rate of the economy were to slow down to 5-6% as China needs a growth rate of 9-10% to absorb about 24 million folks joining the labor force every year; it needs a growth rate of 9-10% to move every year about 12-14 million poor rural farmers to the modern industrial/manufacturing urban sector. The whole social and political legitimacy of the regime of the ruling Communist party rests on continuing to deliver this high growth great transformation of the economy. Thus, a slowdown of growth from 12% to 5-6% would be the equivalent of a hard landing or a recession for China. And now a variety of macro indicators suggest that China is indeed headed towards a hard landing.

http://www.rgemonitor.com/roubini-mo...e_now_stalling

[touchring]

Re: Roubini: Risk of Hard Landing in China

China is already experiencing hard landing.

[phirang]

Re: Roubini: Risk of Hard Landing in China

The Chinese have lots of experience dealing with hard landings... this is frankly nothing compared to what they've dealt with in the past 40 years.

The US, on the other hand...

[Mega]

Re: Roubini: Risk of Hard Landing in China

Ru-BE Knows BUGGER ALL!
MEGA was more right than him for the last 2 years!!!!
Mike

[GRG55]

Re: Roubini: Risk of Hard Landing in China

The Chinese have lots of experience dealing with hard landings... this is frankly nothing compared to what they've dealt with in the past 40 years.

The US, on the other hand...

A slightly different view from someone who has done a lot of work with Roubini in the past [and used to be a better read than Dr. Doom most days on RGE]...

Brad Setser, from the Council on Foreign Relations site:

How severe a slump in China?

Posted on Thursday, November 6th, 2008

...There has long been a rather sterile – at least in my view - debate over how much exports contributed to China’s recent growth. It has long been clear that:

a) Most of China’s growth didn’t come from exports. It couldn’t. Net exports almost never generate 10% growth on their own.


b) The absolute size of the contribution of net exports to China’s growth was large. In 2005, 2006 and 2007 net exports added between 2 and 3 percentage points to China’s growth. When net exports added close to 3 percentage points to the United States growth in the second quarter, no one argued that the contribution to US growth from net exports was small.

Net exports contributed positive to China’s growth in the first half of the year. The World Bank expects that net exports will contribute around one and a half (1.5) percentage points to China’s growth. Real export growth topped real import growth – though both slowed. 1.5% percentage points from net exports isn’t bad. It is more than the US had gotten on average over the last seven quarters. Indeed, it is not all that different from the average contribution net exports have made to US growth in 2008.

The Chinese exporters who were doing well just weren’t as vocal as the textile and toy producers who weren’t. They also tend to be more capital-intensive and thus employ fewer people.

And despite all the (true) talk about the difficulties some Chinese exporters now face, net exports almost certainly contributed positive to China’s growth in the third quarter. Real export growth in the third quarter (on a y/y basis) still exceeded real import growth. That is why China’s nominal trade surplus was basically flat during the first three quarters of 2008 even though China was paying way more for its commodity imports.

More...

[touchring]

Re: Roubini: Risk of Hard Landing in China

Yes, but the problem is China's real estate and investment bubble is also huge. State companies borrowed hundreds of billions from state banks to invest and speculate in real estate.

So how huge is China's real estate bubble? "Huger" than what the government figures show.

To do that we need to look at the movement and consumption of natural resources.

The sudden drop in the commodity market following China's slowed down growth in H2 post Olympics just shows how much natural resources these investments consumed.

For comparison, the slowdown in the US real estate investment throughout 2007 and the slowdown in the European real estate market in H12008 didn't have much of an impact on commodity prices, let alone prick the commodity bubble, but the slowdown in China's real estate market completely trashed it.

A slightly different view from someone who has done a lot of work with Roubini in the past [and used to be a better read than Dr. Doom most days on RGE]...

Brad Setser, from the Council on Foreign Relations site:

How severe a slump in China?

Posted on Thursday, November 6th, 2008

...There has long been a rather sterile – at least in my view - debate over how much exports contributed to China’s recent growth. It has long been clear that:

a) Most of China’s growth didn’t come from exports. It couldn’t. Net exports almost never generate 10% growth on their own.


b) The absolute size of the contribution of net exports to China’s growth was large. In 2005, 2006 and 2007 net exports added between 2 and 3 percentage points to China’s growth. When net exports added close to 3 percentage points to the United States growth in the second quarter, no one argued that the contribution to US growth from net exports was small.

Net exports contributed positive to China’s growth in the first half of the year. The World Bank expects that net exports will contribute around one and a half (1.5) percentage points to China’s growth. Real export growth topped real import growth – though both slowed. 1.5% percentage points from net exports isn’t bad. It is more than the US had gotten on average over the last seven quarters. Indeed, it is not all that different from the average contribution net exports have made to US growth in 2008.

The Chinese exporters who were doing well just weren’t as vocal as the textile and toy producers who weren’t. They also tend to be more capital-intensive and thus employ fewer people.

And despite all the (true) talk about the difficulties some Chinese exporters now face, net exports almost certainly contributed positive to China’s growth in the third quarter. Real export growth in the third quarter (on a y/y basis) still exceeded real import growth. That is why China’s nominal trade surplus was basically flat during the first three quarters of 2008 even though China was paying way more for its commodity imports.

More...

[Tulpen]

Re: Roubini: Risk of Hard Landing in China

The whole social and political legitimacy of the regime of the ruling Communist party rests on continuing to deliver this high growth great transformation of the economy.

I strongly disagree with that notion.

[Tulpen]

Re: Roubini: Risk of Hard Landing in China

Correct, while exports are important they are not the key in understanding China's boom. China is a society in rapid change, economically and culturally. Cheaper commodities will likely increase an already booming infrastructure development.