Bloomberg News

China’s Economy Heading for a ‘Soft Landing,’ ANZ, UBS Say

October 25, 2011

(Updates to add stocks in the sixth paragraph.)

Oct. 25 (Bloomberg) -- China, the world’s second-biggest economy, is heading toward a soft landing, speakers at the Bloomberg Link China Conference in Hong Kong said.

A hard landing is a “distant scenario,” Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd., said at the forum today. Consumption is “very strong” as wages jump, backing economic expansion, said John Tang, China strategist at UBS AG.

China’s gross domestic product expanded 9.1 percent in the third quarter from a year earlier, the slowest pace in two years, while growth in industrial production and retail sales quickened last month, indicating momentum in the world’s fastest-growing major economy is being sustained. The preliminary reading of a Chinese manufacturing index released yesterday was the highest in five months, adding to signs the slowdown may be stabilizing.

“Chinese national debt to GDP ratio is still quite low, and the government also owns a lot of assets,” including banks, state-owned enterprises and land, and is in a strong fiscal position, ANZ’s Liu said. “So with such a wealthy government, it’s very difficult to think that China will fall into a hard landing or experience a hard crisis.”

Liu estimates China’s growth will slow to 9.4 percent to 9.5 percent this year after a 10.4 percent increase in 2010.

Stocks in China rose today, extending the biggest gain in almost two weeks, as a jump in profit for the nation’s biggest real-estate developer eased concerns the slowing economy will spur an earnings collapse.

Manufacturing Rebounds

The Shanghai Composite Index, which tracks the bigger of the nation’s stock exchanges, was 0.7 percent higher at 2,386.79 at the 11:30 a.m. local-time break. The yuan strengthened for the third day, rising 0.21 percent to 6.3620 per dollar as of 12:09 p.m. in Shanghai.

The so-called flash PMI reading of 51.1 for October, released by HSBC Holdings Plc and Markit Economics, was the first expansion in four months and snapped the longest contraction since 2009.

Premier Wen Jiabao said in the past week that the government will strive to expand employment as economic growth moderates and external demand declines. He also called for more support for labor-intensive and services industries, private companies and small businesses that have been hit hardest by the government’s campaign to rein in inflation.

Shadow-Banking Concerns

Banking regulator Liu Mingkang acknowledged last week that tighter liquidity resulting from government lending curbs has “spawned various shadow banking activities” and private lending which will be “strictly” controlled. His comments followed media reports that more than 80 businessmen in the eastern city of Wenzhou have disappeared, committed suicide or declared bankruptcy to avoid repaying debts to informal lenders.

“China’s economy in the fourth quarter and the first quarter next year may be worse than what we have seen the third quarter, as credit for medium and small businesses and shadow banks cast concern,” Joy Yang, chief economist for Greater China at Mirae Asset Securities (HK) Ltd., said at the Bloomberg forum.

Expansion in the three months to September was 9.1 percent, the government said last week, the least in nine quarters. UBS estimates the pace will drop to 8 percent to 8.5 percent in the fourth quarter and to as low as 7.7 percent in the first quarter of next year on weaker exports and industrial output growth.

‘Structural Issue’

The government’s concerns about slowing expansion will overtake inflation worries, Yang said. ANZ’s Liu sees price gains as having already “peaked.”

Inflation, which eased to 6.1 percent in September from a three-year high of 6.5 percent in July, will remain a “structural” issue for China as labor and power prices rise, ANZ’s Liu said today.

Twenty one regions in China including Beijing and Tianjin raised minimum wages by an average 21.7 percent this year as of the end of September, the Ministry of Human Resources and Social Security said in Beijing today. Authorities in 28 out of 31 provinces increased the rate by more than 20 percent last year, according to previous ministry statements.

The economic slowdown hasn’t had a “noticeable impact” on employment so far, Yin Chengji, a labor ministry spokesman said today. More new jobs were created in the three months through September than in any third quarter for several years, Yin said, without giving more details.

Signs are mixed on the outlook for the economy. While gains in consumption and fixed-asset investment held up in September, exports grew at the slowest pace in seven months and broad money supply rose the least in almost a decade, raising concerns that a deepening debt crisis in Europe will temper foreign demand and exacerbate a government-engineered economic slowdown.

Standard Chartered Plc today reduced its estimate for China’s growth next year to 8.5 percent from 10 percent.

--Li Yanping, Sophie Leung. Editors: Nerys Avery, Shamim Adam

To contact Bloomberg News staff for this story: Li Yanping in Beijing at yli16@bloomberg.net

To contact the editor responsible for this story: Ken McCallum at kmccallum4@bloomberg.net


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