China's Economy: Expecting a Soft Landing -- For Now

by Alaistair Chan, Moody’s Analytics, 22 July 2010

0 comments

Facebook

Digg

Twitter

topics:
Management Risk Management

tags:
China GDP Moody's soft landing

China's June data were slightly weaker than expected, with production and inflation slowing.
A gradual trend towards lower but robust and sustainable growth is expected at this stage.
Exports may underperform in coming months.

China's June data were almost uniformly weaker than in May. Industrial production and fixed asset investment growth are both well below their peaks in year-on-year terms, and GDP growth has fallen from its first quarter peak (see chart, “Chinese Growth Peaks”). Electricity and crude oil output growth also weakened in June, suggesting reduced activity in metal refining and other energy-intensive sectors.

Meanwhile, according to the purchasing managers' index, sentiment is cooling (see chart, “Double Dip?”). Sentiment on new orders and new export orders declined significantly, although managers remain optimistic on net.

The release of the June data caused a decline in market expectations of yuan appreciation over the medium term, implying markets believe that the government will slow the pace of policy tightening. Commodity prices declined, as did currencies such as the Australian dollar, as markets revised down expectations for China’s demand for commodities.

Fears of a sharp downturn are overstated at this stage, however. Growth in year-on-year terms was expected to moderate as the weak base from a year ago disappeared. Global risk aversion because of sovereign debt problems in Europe may have reduced manufacturers' orders and sentiment in June, but the relative calm since then may prompt a rebound.

We retain our baseline forecast for a soft landing in the Chinese economy. The government’s 8% GDP target for 2010 is assured, but sustaining growth in 2011 is the next challenge.

Comment on this article

Accounting and Regulations

CFO innovation Asia Accounting and Regulation the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Accounting Regulation, IFRS, US GAAP, Tax, investor relations, corporate governance, Corporate Law, Financial Regulators, Internal Audit, Audit, Corporate Law.

Auditing, Investor Relations, Law and Compliance, Tax

Finance and Banking

CFO innovation Asia, Finance and Banking the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Corporate Finance, trade finance, treasury and risk management, capital expenditure, Banking, mergers and acquisitions

Cash and Liquidity Management, Corporate Finance, Insurance, Treasury Management

Management

CFO innovation Asia the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Management, Corporate Governance, Human Resource Management, Compensation and Benefits, Mergers and Acquisitions, Professional Development, Corporate Real Estate, Risk Management, Budgeting and Forecasting, Business Process Management, Business Process Reengineering, Outsourcing.

Budgeting and Planning, Business Expense Management, Human Capital Management, Outsourcing and Shared Services, Risk Management

Metrics

Corporates, Financial Services

Technology

CFO innovation Asia Technology the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Systems, Business Intelligence, EPR, Accounting software, CRM, Cloud Computing, Telecommunications, Business Process Outsourcing, Business Process Management Software.

Business Intelligence, Enterprise Software and Systems, Financial Systems, Security

CFO innovation ASIA