China s Landing Soft not Hard

In China, a hard economic landing looks increasingly likely as the investment bubble deflates and net exports shrink.

The Global Economy s Inevitable Hard Landing

These hard landing scenarios are extreme.

Fears of a hard landing are overblown.

But even the better performing ones like Brazil, Russia, India, and China are now at risk of a hard landing.

The risk that China will experience a hard landing in the next two years may further hurt many emerging economies.

But Europe could still suffer a hard landing.

While there is a kernel of truth to each of these China specific concerns, they do not by themselves imply a hard landing.

These factors have inspired some China watchers to regard the country s economy as a bubble, if not to predict a hard landing in 2010.

Some factors are cyclical, but others state capitalism, the risk of a hard landing in China, the end of the commodity super cycle are more structural.

If China is to preserve its gains in global stature, it must avoid a political hard landing. For the time being, at least five different scenarios are conceivable.

Among emerging economies, China could face a hard landing by late 2014 if critical structural reforms are postponed, and the other BRICs need to turn away from state capitalism.

Asians need not be pessimistic the perfect storm of a hard landing in China, a double dip recession in the United States, and a collapse of the eurozone is unlikely.

NEW HAVEN Concern is growing that China s economy could be headed for a hard landing.

So the risk of a hard landing will rise by the end of this year.

These factors have inspired some China watchers to regard the country s economy as a bubble, if not to predict a hard landing in 2010. But that judgment seems premature, at best.

By contrast, China has the instruments, resources, incentives, and knowledge to avoid an economic hard landing and, unlike Western countries, lacks any significant constituency wedded to lethal ideas like expansionary austerity.

SINGAPORE The recent financial turmoil in China, with interbank loan rates spiking to double digits within days, provides further confirmation that the world s second largest economy is headed for a hard landing.

The characteristics of a Chinese hard landing are well known from the Great Recession of 2008 2009.

A powerful rebalancing strategy offers the structural and cyclical support that will allow it to avoid a hard landing.

In the second half of 2011, China s growth rate could fall further, but there will be no hard landing.

China s potentially strong domestic demand base and ample room for policy maneuvers can help it to avoid a hard landing.

In short, although China will miss its inflation target of 4 for this year, price growth will remain under control. In the second half of 2011, China s growth rate could fall further, but there will be no hard landing.

While hard landing scenarios, associated with a potential debt crisis, are also possible, the authorities have enough policy space to manage them.

But the historical rule of thumb is that the chances of a fast, hard landing have now surpassed 25 , and continue to climb.

The ECB will have to cut interest rates in 2008 if it wants to avoid a hard landing for the euro zone economy.

China s economy grew by 10 per year for the last three decades, but slowed to 7.8 last year and risks a hard landing.

Indeed, the world should expect a near recession in Russia and Brazil in 2009, owing to low commodity prices, and a sharp slowdown in China and India that will be the equivalent of a hard landing (growth well below potential) for these countries.

With the Chinese economy far less threatened by export led weakening than it was three and a half years ago, a hard landing is unlikely.

Rapid normalization like that undertaken in the space of a year in 1994 would crash asset markets and risk leading to a hard economic landing.

If imbalances between the US and China are thus unsustainable, it makes sense for policymakers to pursue a soft landing.

If China s government is to prevent a debt deflation spiral from causing a hard landing, it should shift its focus to targeted expansionary fiscal policy. With a budget deficit of 2.3 of GDP, China can certainly afford to increase government expenditure and reduce taxes.

In India, the question is whether newly elected Prime Minister Narendra Modi will move decisively to fulfill voters high expectations for economic reform before his post victory honeymoon is over. And China will have to mitigate financial risks if it hopes to avoid a hard landing.

In China, the credibility of the incoming leadership will depend in large part on whether the economy can consolidate its soft landing.

The mere possibility of an imminent hard landing for the dollar and with it, for the US and world economy should be alarming enough to mobilize concerted action.

As a result, the reforms needed to rebalance the economy may not occur fast enough to prevent a hard landing when, by next year, an investment bust materializes.

Against the background of a shaky global recovery, concerns have grown considerably over a possible hard landing for the Chinese economy, caused by monetary tightening aimed at controlling inflation.

To judge China s economic dynamism, the key indicator is its fiscal position. When, and only when, China s fiscal position is worsening rapidly will its economy suffer a hard landing.

Other advanced economies or emerging markets (the rest of the euro zone New Zealand, Iceland, Estonia, Latvia, and some Southeast European economies) are also nearing a recessionary hard landing.

His hard line approach isolated Japan and angered China, leading to an outburst of anti Japanese demonstrations in China in 2005.

In other words, a few rocks in the South China Sea have put China between a rock and a hard place.

Moreover, China plans to improve and expand its capabilities for assault landing and joint logistical support, both of which used to be weak points.

The landing was perfect.

China s Last Soft Landing?