While fixed asset investment moderated in Q4 2011, it’s still up 20.4 percent on a year ago. Although private residential construction slowed significantly in Q4 2011, this is a deliberate objective of government monetary policy tightening, to cool down an overheated residential property market in the large cities. Meanwhile, the Chinese government has also taken measures to mitigate this construction slowdown with a program to build 36 million affordable homes for low-income households over the five years starting in 2011. Work started on 10 million of these last year, but the bulk of construction work on this first batch of homes will take place during this year. Meanwhile non-residential construction, which accounts for the largest share of total construction, has been supported by large-scale infrastructure development programs, particularly in the relatively underdeveloped central and western provinces.
So, could China have a hard landing?
In the Year of the Dragon, we forecast the Chinese economy to have a soft landing, but it still faces significant downside risks and vulnerabilities. Due to these risks, a downside scenario with a hard landing for the Chinese economy sometime in the next three to four years is a significant risk, with a probability of 20 to 25 percent.
A key risk comes from imbalances in the structure of the economy, which has been excessively reliant on exports and investment as growth engines over the last three decades. This has created a lopsided economy in which private consumption only accounts for one third of GDP, a very low share by international standards. This heavy reliance on the export growth engine makes China vulnerable to external shocks.
A second key vulnerability stems from the 50 percent expansion in bank credit in 2009 to 2010, which was also linked to rapid growth in local government borrowing, much of which was for uneconomic projects that will eventually become bad debts on banking sector balance sheets.
Yet the Chinese government still has substantial flexibility, due to its foreign exchange reserves which exceed $3 trillion, as well as a moderate government debt to GDP ratio estimated at around 50 percent after including contingent liabilities from local government borrowing. This gives the Chinese government leeway to use further fiscal stimulus measures should growth slow more sharply than expected. With inflation already falling, monetary policy easing through reductions in the reserve requirement ratio is also expected to support growth in 2012.
And in the long term? The outlook for Chinese economic growth is still favorable, with average GDP growth of around 8 percent per year expected over the next decade. This will continue to drive the global shift of economic power from West to East, with China forecast to become the world's largest economy by 2020.
However, the Chinese economy also faces key risks and vulnerabilities, and the new leadership will face a difficult task of either taming the Dragon economy or facing the threat of a hard landing that could derail China’s economic development.
Rajiv Biswas is the Asia-Pacific Chief Economist for IHS Global Insight. He previously worked as Southeast Asia director for The Economist Group and as Executive Director for Asia-Pacific Country Risk for UBS. He has also worked as Senior Economist for the Commonwealth Secretariat and as a consultant for the United Nations.
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Sara
Hell yes, i want use the shut up sitnmhoeg discernment this but didnt have time, may i repost this CRI: Research Report on Chinese consistent with nature Rubber Industry, 2011-2012
Liang1a
Quote from the article:
A key risk comes from imbalances in the structure of the economy, which has been excessively reliant on exports and investment as growth engines over the last three decades. This has created a lopsided economy in which private consumption only accounts for one third of GDP, a very low share by international standards. This heavy reliance on the export growth engine makes China vulnerable to external shocks.
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Liang’s comment:
Excessive reliance on exports is indeed the fundamental problem of China’s economic development. China cannot export more than $2 trillion of anything whether low tech labor intensive products or high tech capital intensive products. This is due to the limits of the other countries’ ability to import Chinese goods. Therefore, in order to keep growing China must develop its domestic economy to provide more goods and services to its own consumers. This in turn means China must make the Chinese people more productive so that they can earn higher incomes commensurate with their increased productivity. Otherwise, increasing incomes by government mandate without increasing productivity will only push up inflation. Also the farmers or rural residents must be urbanized so that they can become productive in the manufacturing and service industries. Also China must become energy self-sufficient. China simply cannot spend trillions of dollars to import foreign oil. Therefore, China must increase its domestic production of electricity using nuclear, wind, solar, hydro, coal, and other means of electric power generatoin while using electric cars using either batteries or fuel cells. This is the way to keep the Chinese economy growing.
Therefore, China should stop subsidizing exports, ban FDI, while increasing subsidizeing renewable energy industries, electric car, urbanization, etc. China should also build affordable housing (which it is doing), build more world class universities, build more hospitals and medical schools, expand medical supplies industries (produce more MRI machines, dialysis machines, etc), increase funding for military (up to 3% of GDP), etc. Once the Chinese can produce all the goods and services the Chinese people need, then they don’t need to export anything to provide full employment to all the Chinese people. And Chinese economy will be fully isolated from the recessions of the outside world.
China can achieve the most advanced technologies in the world in all technological sectors because it can educate millions of world class scientists and engineers. China also has more mineral resources than any other countries in the world. China can easily be energy and food self-sufficient. Therefore, China can be 99% self-sufficient while achieving the highest standard of living in the world. Relying on exports, especially low tech labor intensive exports, will only keep Chinese people unproductive and poor. But relying on domestic development and making the Chinese people the most productive in the world will make the Chinese people the richest in the world. If the Chinese people can use the same tools and machines as the Americans, then their productivity will be the same as the Americans and deserve incomes as high as the Americans. On the average I think the Chinese can achieve even higher productivity and incomes than the Americans because 1/3 or more of the Americans are blacks and Latinos who are producing only 2/3 or less of the white Americans. Therefore, the Chinese can achieve some $66,000 of per capita GDP (2011 PPP). Therefore, by 2040 and a population of 1.5 billion, China can achieve a total GDP or GNP of $100 trillion (2011 PPP) or more. And the Chinese economy will be as big as 150% of the rest of the world combined.