China growth forecast cut by IMF as others get bearish

13th October 2011

The IMF has cut its growth forecasts for the Asia Pacific region overall to 6.3% in 2011 and 6.7% in 2012. For China, it expects GDP growth of 9.5% in 2011 and 9% in 2012, downgrades of 0.1% and 0.5% respectively.

The report says the ‘escalation of the euro area financial turbulence and a more severe slowdown than anticipated in the United States would have clear macroeconomic and financial spill over to Asia.' Others are if anything more pessimistic.

Tyler Durden, Zero Hedge's resident controversialist has an interesting take. He suggests that China "has entered a new phase of development where the quality of growth matters more than the pure quantity, and with it, the sustainability of growth. This would suggest that the next 5 years would see an outcome closer to the 7.5 pct average, which the 5 year plan assumes. In the coming weeks, the key in all this will be Chinese inflation, and judging from the chart of agriculture prices that GS's Yu Song sent me Friday, it is coming down. Once that happens, talk of a hard landing will dissipate."

That is still quite bullish. However, a few week's back, Citywire interviewed First State emerging markets fund manager Angus Tulloch. He said growth in China and India could halve to around four or five per cent.

‘So far China's economic management has been very good, but a lot of people overestimate any government's ability to control an economy, let alone one as massive as China's. No country can abolish economic cycles. If you look at Germany or the UK, growth never goes in a straight line and there are always setbacks. People should be mindful of this in China,' he told the website.

That in fact, takes China's growth to levels that some commentators suggest could lead to a lot of political tension.

It is certainly not all rosy at the moment. Here Business Insider reports on problems with loans from China's shadow banking system with one of the worst hit towns, Wenzou. It reports on some speculation that local authorities are being encouraged to release loans to small businesses.

Some economists go even further. Cambridge University economist Ha-Jong Chang talking to the Guardian believes it is up to the West to go for growth because emerging markets are just not going to rescue you.

The paper writes that Chang believes "even with three decades of growth and 1.3 billion people, China's economy is still just over 8.5% of the world's (as of 2009), so whatever it does pales in significance compared to what goes on in the rich world. Moreover, it faces the challenges of deflating its huge property bubble without creating a financial crisis and managing its intensifying social conflicts – it experiences thousands of riots and strikes every year. And its dependence on exports makes it vulnerable to crises in the rich world."

Chang's is not the prevailing view, but whether as a destination for investment cash, or even as a possible white knight for the global economy, it might be wise not to pin all your hopes on China.

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