Problems of the Chinese economy – 10/3

What is currently the economic situation in China, the second biggest economy in the world? Will there be or has there already been a hard or a soft landing in the country? We will try to answer these questions giving a very brief overview of current developments.

It will be difficult for China to sustain the high growth rates of the past given the fact that its main counterparts (buyers of Chinese products), Europe and the U.S. are stagnant themselves.

A significant indicator will be the economic health of Australia, another major counterpart to the Chinese. Should Australia show disinflation and low growth trends, this would point to Chinese not buying Australian commodities, thus suffering from oversupply themselves.

The threat of a housing bubble is existing, given that newly-built Chinese cities are still empty, waiting for inhabitants. Real estate prices in the empty cities are too high for the average Chinese citizen trying to move to the city. Also, rural Chinese people currently earn more money than urban cizitens, thus reducing the desire for a move to big cities.

The long-standing one-child Chinese policy has created, among other things, a relative lack of workers in the country.

Retail sales and manufacturing figures have not been encouranging lately and show a standstill to say the least.

Chinese authorities may ease monetary policy to avoid hard landing. Such a scenario would be bullish for commodity prices and stocks. Global stocks in particular have been strong in the last months although gold, silver and copper show signs of weakness. However, Chinese authorities are aware that low interest rates provide the ground for new asset bubbles, in contrast to Fed which dismiss this possibility, at least in public.