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2012, May 22

China 2012: Fresh Evidence of a Soft Landing

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China 2012: Fresh Evidence of a Soft Landing

by Alaistair Chan, Moody's Analytics, 12 January 2012
topics:
Risk Management
tags:
China economy inflation renminbi trade
  • A soft landing is still in the forecast for China’s economy 
  • Domestic expansion in areas such as railways and affordable housing will drive growth 
  • There is little impetus for export growth, given the weak global economy 
  • Policy has a loosening bias, but the government seems to be easing relatively slowly
 
China’s macro data confirm our belief that its economy is in the midst of a policy-induced soft landing.
 
The government is slowly taking its foot off the brakes and moving to shore up a sustainable recovery. Although the balance of risks tilts to the downside and growth could dip below 8% in the first half, the economy will remain relatively robust through 2012. 
Exports and imports
The monthly trade surplus rebounded to US$16.5 billion in the final month of 2011, although this was because of flatter imports rather than better exports. This is somewhat concerning, as it is similar to what happened in late 2008, when China’s trade surplus ballooned as imports dropped.
 
Delving into the December trade data does not alleviate these concerns: Imports from tech and capital machinery exporters such as the US, Japan and Singapore all fell in year-on-year terms, which suggests a slowing in exports ahead. 
On the positive side, imports of commodities remained strong. Copper imports reached a record in December, up 48% year-on-year. Iron ore and crude oil imports show similar gains.
 
This indicates that domestic activity is holding up despite steady policy tightening through 2010 and most of 2011. The same can be seen in industrial production and fixed investment data, which grew at fairly healthy and sustainable rates overall in 2011.
 
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