After growth picked up in the second quarter, is a Chinese hard landing now unlikely?
Mark Williams, chief Asia economist at Capital Economics, says Yes.
The advantage of a state-led system like China’s is that policymakers have plenty of levers they can pull to prevent a slump in growth.
We’ve had a little taste of that in recent months. There’s been a burst of spending on infrastructure such as railways, and state-owned banks have increased their lending to selected parts of the economy.
But this year’s measures amount to fine-tuning rather than full-bore stimulus. Policymakers could do much more if, say, the property sector appeared to be collapsing.
So if there is one message to take away from the latest data, it is that a hard landing is unlikely.
But the cost of all this policy intervention is that capital is allocated inefficiently, leading to pockets of overcapacity in industry and in the real estate sector.
China may be able to avoid a crash, but it will have to pay the price in terms of a further deceleration in GDP growth in the future, as investment slows.
Freya Beamish, an economist at Lombard Street Research, says No.
We don’t have to wait much longer to find out whether China will have a hard landing. The cyclical hard landing has already happened (twice) and the structural one is in train.
Lombard Street Research has always defined a cyclical hard landing as two or more quarters of annualised growth at or below 5 per cent.
We also have our own estimates of GDP, based on a straightforward recalculation of official data, starting from nominal GDP. On this data, China had a cyclical hard landing in 2012 and again coming into this year.
Growth in the second quarter confirms that China is back to its old dependencies. It was solid, but heavily supported by exports. This is good news in a bad situation.
China’s leaders have a narrow window of opportunity in which to accept the structural hard landing.
This year, they have clearly been stimulating and domestic demand has improved. But they don’t appear to have reached for the blunderbuss.