From FT Alphaville:
When does a Chinese growth deceleration become a crisis?
It’s clear to everyone that something big is happening in China.See also today's follow-up: "By the way, China isn’t rebalancing", Monday's "Some observations and oddities in China’s Q2 GDP" and Izabella Kaminska's "China’s GDP and the investment factor".
Double-digit growth is long forgotten and even high single-digit growth is above the consensus (for whatever that’s worth). The implications of this alone are quite massive and you could throw around any number of predictions about what it might mean for commodities, global imbalances, and more. Nomura sees a 30 per cent chance of growth falling below 7 per cent later this year, and Barclays are talking about the odds of growth slowing to as little as 3 per cent growth. Even entertaining the possibility of an outright economic contraction would not get you accused of being a crazed permabear these days.
We had to get here eventually: the signs are only increasing that China’s economy can’t and won’t continue as it has for the past few years. That’s both the composition of the growth and, as we’ll explore below, the rate itself.
The central government leaders recognise things can’t go on as they have been, and talk openly of rebalancing away from the extremely investment-heavy economic mix. They’ve also been keen of late to declare they are comfortable with slower growth — although they seem to be increasingly tentative about that particular message.
It’s probably no coincidence that there’s open talk that this year’s growth target of 7.5 per cent might even be missed; and it’s a target that was already lower than many were expecting. The spike in some interbank lending rates to shocking levels last month caused so much skittishness that it’s hard to believe it was entirely engineered, and a lot of data releases have fallen well short of expectations this year — not least the Q1 GDP. Q2 met lowered expectations — but the details were hardly reassuring.
Does that mean an imminent crisis? Does it mean, for example, a financial crisis, outright GDP contraction, or an overthrow of the regime?
We’re not sure.
What is very difficult about China right now is to see past the signs of slowdown and change (liquidity, property markets, precarious WMPs, etc) and connect them to the underlying shifts: the decline of growth led by exports, demographics and most recently, credit-fueled investment....MUCH MORE
