CHINA: HARD LANDING?

CHINA 2012: NO HARD LANDING ON THE HORIZON?

Samuel Lum, CFA

Seeking Alpha, March 13, 2012

Jing Ulrich, J.P. Morgan’s managing director and chairman of global markets for China, began her presentation at the CFA Institute Asia Pacific Investment Conference last week by surveying the audience’s opinion on whether they believed China’s economy would suffer a “hard landing.” Only a few hands went up. Ulrich said she asked the same question of another audience of some 800 people from across the United States the previous week. Only a single hand went up. These results stand in sharp contrast to sentiment from just three months ago, Ulrich said, when about a third of her audiences were expecting a hard landing. The view on China’s macro picture has changed, she said.

China is itself in the midst of transition. On the political front, Vice President Xi Jinping and Vice Premier Li Keqiang are preparing to take over as China’s top leaders later this year. With regard to social reform, new measures to improve education, housing, and quality of life, among other priorities, are being implemented and more are being planned. At the same time, the Chinese economy has already begun rebalancing toward a higher consumption share of gross domestic product (GDP), with much of the growth coming from internal consumer demand rather than exports and fixed asset investments. As Ulrich noted, Premier Wen Jiabao just announced a lower GDP growth target of 7.5% for 2012 at the current National People’s Congress, as China moves into a new era of slower and rebalanced growth that is in line with the 7% average growth target over the period covered by China’s 12th Five Year Plan (of which this KPMG report offers a helpful overview).

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