Chinese Economy Already in 'Hard Landing,' JPMorgan Says
March 15 (Bloomberg) -- China's economy is already in a so- called "hard landing," according to Adrian Mowat, JPMorgan Chase & Co.'s chief Asian and emerging-market strategist.
"If you look at the Chinese data, you should stop debating about a hard landing," Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. "China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It's not a debate anymore, it's a fact."
The Shanghai Composite Index fell 2.6 percent yesterday, the most since Nov. 30, after Premier Wen Jiabao said home prices are still far from reasonable levels. His comments fueled concerns the government will maintain restrictions on the property market for an extended period even as the curbs threaten to slow economic growth.
Wen announced at the beginning of a national lawmakers' congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years. Data last week showed China's factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months.
Mowat, a runner-up for Asian equity strategy in 2011 according to Institutional Investor magazine, said last May the risk of a hard landing was building in China as fixed-asset investment in real estate had increased even as property demand remained weak. That meant residential inventories will increase and lead to a contraction in construction activity, the strategist said in a May 17 interview.
"One should be concerned about what's happening in the China property market," Mowat said at yesterday's conference. "People are too complacent that the government can turn what's going on in this market."
'Vastly Overblown'
Gary Shilling, president of A. Gary Shilling & Co., a Springfield, New Jersey-based consultancy firm, said on Feb. 2 that China's economy is headed for a "hard landing" this year as weaker demand overseas chokes off exports. Shilling, who correctly forecast the U.S. recession that began in December 2007, defines a hard landing as a growth rate below 6 percent.
Shilling and Mowat's views are in contrast with Yale University Professor Stephen Roach, a former non-executive chairman for Morgan Stanley in Asia, who said on March 8 that concerns China will enter a hard landing are "vastly overblown."
"I don't think the banking system will collapse and the property bubble will burst," Roach said at a conference in Shanghai. "These are all exaggerations."
Home Sales Slump
China is easing restrictions on lending capacity at three of the nation's four biggest banks after new loans dropped to a four-year low, officials at the banks with knowledge of the matter said. The government's two-year effort to control the property market helped spur a 25 percent drop in home sales in the first two months of the year after surging 26 percent in January and February of 2011.
"What you can look forward to is to see a pickup in property demand that will clear up the inventory; that doesn't appear likely," Mowat said in an interview after the conference. "I don't see any evidence of a policy move that will cause the economy to reaccelerate."
To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/Sent from my iPad
