We have said from time to time that we had expected growth in China to be lower than mainstream forecasts. Although China is not as export dependent as widely believed, it had been enjoying not only a trade boom, but also a commercial real estate bubble. With two engines of growth in stall, China seems poised to suffer a sharp slowdown.
From Bloomberg (hat tip reader Michael):
China faces an economic “hard landing” and the risk of social unrest with growth slowing to 6 percent or less this year, the weakest pace since 1990, Fitch Ratings said…
That would be less than half of the 13 percent pace that pushed China past Germany to become the world’s third-biggest economy in 2007, according to revised statistics released this week. As many as 4 million migrant workers lost their jobs last year as factories closed and that figure may jump by another 5 million in 2009, according to Credit Suisse AG…
The key one-year lending rate may fall to about 3 percent from 5.31 percent by the middle of the year and the government may also hasten spending, McCormack said….
China faces its biggest “employment adjustment” since reforms of state-owned enterprises in the 1990s, so social stability “is clearly an issue,” McCormack said. “There is a question of how easy it is to redeploy millions or tens of millions of unemployed factory workers to infrastructure construction products that may be located elsewhere in the country.”
Waning exports have led to protests by fired employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong last year, and an urban unemployment rate estimated at more than 9 percent by the Chinese Academy of Social Sciences…
Central bank Governor Zhou Xiaochuan and Liu Mingkang, the chairman of the China Banking Regulatory Commission, both acknowledged this week that the government risks missing its 8 percent target for creating jobs and maintaining social stability.
Ambrose Evans-Pritchard of the Telegraph from time to time has raised the notion that Chin’s efforts to promote exports in the face of a big downdraft in trade could make matters far worse by evoking protectionist reactions. He latest line of thought from “Will China lead the world into depression?“: He discusses a scenario from uber-bear Albert Edwards of Societe Generale:
Mr Edwards said investors have a “touching faith” that China’s authorities are in control of events.
“Could the economic situation in China become so bad that it threatens the regime itself? Of course it could. But before being swept away in a tidal wave of worker unrest it has one key tool in its economic armoury it has used before. MEGA-DEVALUATION. China has a track record of such things. At the end of 1993 the authorities devalued the yuan by 33pc.”
A replay would be the surest root to a Smoot-Hawley II.
“Amid confidence that the ongoing, massive, monetary and fiscal stimulus will prevent a repeat of the Great Depression, will it instead be competitive devaluation and implosion of world trade that we should watch out for.”
Evans-Pritchard questions this forecast, and thinks the Chinese will stand pat, in a replay of 1998.