China Bears Still Waiting for Moment in Sun

China's GDP figures in the first quarter indicated that the economy is not heading for a major crash, vindicating observers who say that China will manage to engineer a soft landing.

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The Chinese economy expanded 8.1 percent in the first three months of the year, compared to an 8.3 percent growth predicted by economists in a Reuters poll. This is in line with an engineered slowdown, market observers say.

"Is this a hard landing? No, it's a soft landing, very much in line with expectations," Tony Nash, managing director of IHS Global Services, told CNBC on Friday after the numbers were released. "If it's under 7.5 percent, then it's definitely cause for concern."

The first-quarter figures will further polarize observers who say that the Chinese economy is heading for a crash and those who think that Chinese authorities are managing to clamp down on too-rapid growth and asset bubbles successfully.

Those in the bearish camp include “Dr Doom” Marc Faber, who told CNBC late last year that a hard landing in China is possible and will have "devastating" effects on the economy. Bill Smead, CEO of Smead Capital Management told CNBC on Friday before the GDP data were released that he expects the number to come in at 7.5 percent "at best".

"It's wonderful to think about it being a command economy but the problem is you cannot defy economics," Smead said. "If you google boom bust cycle, you'll get wikipedia give you 20 pages of history and if you google soft landing there are no entries. There's never been a boom and a soft landing ever."

"So if you want to buy a lottery ticket, bet on a soft landing, if you want to be successful, you will expect this to play out all speculative episodes, an economy that badly needs to get cleaned out, and you don't clean the economy without cleaning the banking sector."

Offering a more sanguine outlook is Manoj Vohra, Director of Custom Research at Economist Intelligence Unit, who told CNBC that he believes it will be a gradual slowdown.

"You have to look at indicators and the factors weighing on growth - it's the property and construction market drag, there is this delayed impact of monetary tightening and of course, there is sluggish external demand," Vohra said "So if you look at that, this is an engineered slowdown, this is a desired slowdown. We continue to believe that it will be a soft landing."

The other indicators published on Friday were also more or less in line with expectations. March industrial output expanded 11.9 percent, March retail sales rose 15.2 percent and quarterly fixed asset investment, one of the principal drivers of China's economy, grew 20.9 percent.

Taking the middle ground is Mikio Kumada, Global Strategist at LGT Capital Management, who says while a banking system is unlikely to collapse, credit is a big uncertainty in China.

"I think that economy certainly has no problem with growth. But there's a problem with credit underneath that growth and that will take some time to digest properly," Kumada said. "For a sustainable rally, or at least for most of the international markets to regain real confidence in the Chinese market, we need to know how much is under the carpet. We need to recognize that there is stuff under the carpet and deal with it. I think they will do that piecemeal and then we can move on."