China's Economic Growth in 2012: Soft vs. Hard Landing?
China's first quarter GDP growth figure just came out last week (see New York Times), and its economic growth slowed down from 8.9% in the last quarter of 2011 to 8.1% in the first quarter of 2012. Although the growth rate is still above the 7.5% target set by the government, it is well below the market expectation of 8.4%.
The pressure mainly comes from two areas. Domestically, the investment and construction in private residential housing market has moderated and the property price has been cooling on a nation-wide basis, reflecting the government’s cumulative efforts since mid-2011 to prevent property bubbles. Meanwhile, external demand is weakening as well, with exports in the first three months only registered single digit growth, the slowest level in two years.
Slowing investment and exports caused the expansion of manufacturing production to moderate as well. Based on the reading from the Purchasing Manager’s index reported by Markit, China’s small and medium-sized manufacturers are continuing to struggle and their production has been in contraction for five straight months.
The weakened external demand and domestic activities have raised increasing concerns about the prospects of a “hard-landing” for Chinese economy. MAPI just released an economic update in audio, which provides the forecast for China’s economic growth over the next two years, analyzes the major downside risks coming from property market and banking sector, and explains why the more likely case is for China to see a soft, rather than hard, landing.