China Defends Growth Targets, but Analysts Aren't So Sure
As if to counter increasing market chatter about China’s inability to meet its 2012 growth target, Chinese Premier Wen Jiabao on Tuesday pledged that the country’s growth momentum remained intact and promised to tap into its massive fiscal stability fund if necessary.
While the comments broadly supported China's stock markets on Wednesday, detractors warn that the Chinese economy has slowed down so much that further stimulus won’t help it avoid a hard landing.
Donald Straszheim, Senior Managing Director of China Research with ISI Group, says he is “sure” China will report a 7.5 percent growth rate for 2012, in line with official forecasts, but real growth will be at a much lower pace.
“I think the growth is going to be about 5 percent when we add up the economic numbers,” Straszheim told CNBC Asia’s “Squawk Box” on Wednesday. “That’s a hard landing in anybody’s book.”
China’s economy has been “extraordinarily weak” in recent months due to external factors, particularly a troubled Europe, where demand has “fallen off the table,” he added.
“Manufacturing (in China) is retrenching at an extraordinary rate. And appliances, furniture, property markets, all are weaker than they were at the through of the 2008-09 meltdown. 50 percent of the CSI 300 had earnings slower in the second quarter. That's a bigger slowdown than any time in the prior downturn.”
Growth in China’s economy has slowed for six straight quarters, and authorities have battled the slowdown with two interest-rate cuts and three cuts to banks’ reserve requirement ratios since November last year. But the effects of the measures have yet to show up in the numbers—this week's data on trade and industrial output for August turned out surprisingly weak.
The latest stimulus from regulators, in the form of an infrastructure program worth $157 billion announced last week, may have prompted a rally inChinese stocks but Straszheim argues that the measure is too little, too late.
“This $150 billion, about a trillion yuan, that they announced on infrastructure is spread over four years. That's only 250 billion (yuan) a year. That's a half of 1 percent of GDP,” he said.
“The stimulus package they did in 08-09, was 5 percent of GDP, two years running. They've got to do more. I think they will do more. But, it cannot offset the weakness that is being thrust upon China because of weakness in its export markets overseas.”
Olivier Desbarres, Director and Head of Forex Strategy at Barclays says investors need to get used to the “new normal,” that is, slower rate of growth because it is a deliberate, state-engineered slowdown which will put the economy on a more sustainable path.
“The government has made it very clear in recent years that they want to restructure,” said Desbarres, who expects China to grow 7-7.5 percent in 2012.
“They want to rebalance their economy away from exports and investment towards consumption. And that process will see growth come down but hopefully be more sustainable going forward.”
Straszheim believes China’s economy is showing signs of stabilization, but the days of 9 percent growth are over.
“Six percent or something like that is the new normal for China. And it's a fantasy to think that China can continue to grow and head right back up to 8 or 9 percent or something like that. Global conditions will not allow,” he said.
Straszheim does not see a rebound for China’s economy until the first half of 2013 but Jim Walker, Founder and CEO of Asianomics in Hong Kong, has even more dire forecasts.
“We're somewhat more pessimistic with regards to the timing of this. I don't think the economy is going to better until the 4th quarter of 2013 at the earliest,” he told CNBC.
—By CNBC’s Jean Chua.