{"id":28054,"date":"2012-03-07T21:00:22","date_gmt":"2012-03-08T02:00:22","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/07\/even-china-admits-a-hard-landing-is-getting-more-likely\/"},"modified":"2012-03-07T21:00:22","modified_gmt":"2012-03-08T02:00:22","slug":"even-china-admits-a-hard-landing-is-getting-more-likely","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/07\/even-china-admits-a-hard-landing-is-getting-more-likely\/","title":{"rendered":"Even China Admits a Hard Landing is Getting More Likely"},"content":{"rendered":"

By MoneyMorning.com.au<\/strong><\/p>\n

If there is one issue that divides the world of investing more than any other right now, it\u2019s China<\/strong>.<\/p>\n

On the one side, you\u2019ve got those who think the Asian giant is going to keep growing, growing… and growing.<\/p>\n

Others point out that China is not immune from the rest of the world\u2019s woes \u2013 and that it has its own batch of problems to deal with on top.<\/p>\n

<\/span><\/p>\n

We\u2019re in the bearish camp. China\u2019s economic successes over the past 30 years have obscured the fact that its institutions still have plenty of room for improvement, and that the state controls much of industry.<\/p>\n

That\u2019s fine at the early stages of development. It\u2019s one way to get things done quickly. But as it gets richer, these problems start to matter more. This will make it more vulnerable to shocks.<\/p>\n

And confirmation that things could get much tougher than the optimists expect has come from an unexpected source \u2013 the Chinese government.<\/p>\n

China Cuts its Economic Growth Forecasts<\/center><\/h3>\n

One of the problems China observers have is that the data simply isn\u2019t that reliable. The Chinese state uses a mixture of carrot and stick to keep Chinese citizens in line: the carrot is ongoing economic growth and improving standards of living.<\/p>\n

This means the government is anxious to show that the economy is advancing quickly \u2013 even when it clearly isn\u2019t. For example, as Cris Sholto Heaton noted recently, there were at least five periods of very low growth between 1979 and the present day. However, none of these are reflected in the data.<\/p>\n

So when the Chinese Premier Wen Jiabao cuts the growth target to 7.5%, it\u2019s clear that he is managing expectations lower. He also suggested that China\u2019s exports were likely to grow at a slower rate<\/a> in the future.<\/p>\n

Of course, the political spin on this is that lower growth is all part of a grand plan to increase domestic demand. He also made noises about economic reform. However, it\u2019s like a politician resigning \u201cto spend more time with my family\u201d – you know that it\u2019s just an excuse.<\/p>\n

A Chinese Hard Landing is Bad News For Commodities<\/center><\/h3>\n

So what does all this mean for markets?<\/p>\n

The biggest losers from a Chinese hard landing<\/a> are going to be commodities<\/a>, industrial materials in particular. China\u2019s economic growth has turned it into a major consumer of raw materials. For instance, it accounts for around 40% of copper and aluminium consumption. This means that both those metals \u2013 and others, such as iron ore<\/a> – should be badly hit by a slowdown.<\/p>\n

Of course, there are exceptions. A lack of attractive alternative investments has seen Chinese investors flock into gold<\/a>. Wen Jiabao also restated plans to increase defence spending, so prices of related metals \u2013 such as tungsten<\/a> – should hold up.<\/p>\n

The Middle Eastern crisis also means that oil prices could well remain high<\/a> in the short run. Capital Economics thinks that Brent will remain above $100 in the first half of the year. However, the research group also believes that crude oil<\/a> could fall to as low as $85 by the end of the year, on the back of falling demand.<\/p>\n

<\/p>\n

If China Sneezes, Australia Will Catch a Cold<\/center><\/h3>\n

A Chinese slowdown will also hit Australia<\/a> hard.<\/p>\n

Up until now, Australia\u2019s role as an exporter of primary materials and its trade links with the People\u2019s Republic \u2013 a quarter of its exports go to China – mean that it has performed strongly, even as other developed economies have slumped.<\/p>\n

Australia has only had two quarters of real negative growth in the past ten years. Since 2004, unemployment has never risen above 6% – it is currently 5.1%. However, a Chinese slowdown<\/a> will whack it with a double whammy of falling exports and worsening terms of trade (it\u2019ll no longer be exporting lots more than it imports).<\/p>\n

Australia also has a third problem \u2013 it still has a rampant housing bubble<\/a>. According to The Economist, house prices are 40% above their historical levels relative to income. That can\u2019t go on.<\/p>\n

Indeed, the bubble may already have popped. According to the Australian Bureau of Statistics, the average house price in eight major cities fell by nearly 5% from December 2010 to 2011.<\/p>\n

Both JP Morgan and Saxobank believe that there is a good chance Australia could go into recession. And to be fair, if you read the local press, it\u2019s clear that many Aussies who don\u2019t work in the mining sector feel like they\u2019re already in one. Tim Colebatch in The Sydney Morning Herald points out that the latest data shows that the non-mining parts of the Australian economy<\/a> are not growing.<\/p>\n

Matthew Partridge<\/strong><\/p>\n

Contributing Editor, MoneyWeek (UK)<\/strong><\/p>\n

Publisher\u2019s Note: <\/em>This is an edited version of an article that first appeared in MoneyWeek (UK)<\/a>.<\/p>\n

From the Archives\u2026<\/em><\/strong><\/p>\n

The Stock Market Financial Winter is Coming<\/a><\/p>\n

2012-03-02 \u2013 Dan Denning<\/p>\n

Why You\u2019ll Want to Watch This \u2018Bad\u2019 Retail Stock Very Closely<\/a><\/p>\n

2012-03-01 \u2013 Kris Sayce<\/p>\n

Higher Oil Prices \u2013 Government Guaranteed<\/a><\/p>\n

2012-02-29 \u2013 Dr. Alex Cowie<\/p>\n

Asymmetric and Economic Warfare with Iran<\/a><\/p>\n

2012-02-28 \u2013 Dan Denning<\/p>\n

Why the Greek Debt Crisis Has Nothing to Do With the Euro<\/a><\/p>\n

2012-02-27 \u2013 Nick Hubble<\/p>\n

<\/strong><\/p>\n

For editorial enquiries and feedback, email letters@moneymorning.com.au<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nEven China Admits a Hard Landing is Getting More Likely <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au If there is one issue that divides the world of investing more than any other right now, it\u2019s China. On the one side, you\u2019ve got those who think the Asian giant is going to keep growing, growing… and growing. Others point out that China is not immune from the rest of the world\u2019s … <\/p>\n

Continue reading “Even China Admits a Hard Landing is Getting More Likely”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-28054","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=28054"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28054\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=28054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=28054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=28054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}