Chovanec: China hard landing already underway

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By Leith van Onselen

Above is a must watch video interview on CNBC’s Squawk Box with Patrick Chovanec, an associate professor at Tsinghua University in Beijing, talking about the Chinese economy, which he believes is currently experiencing a “hard landing”, with growth in the 4% to 5% range. Chovanec’s segment begins at 2.30.

CNBC’s printed summary of the interview is provided below:

Never mind the official data, China is already experiencing a hard landing, and there is no ‘silver bullet’ solution to the country’s economic problems, according to China bear Patrick Chovanec.

Chovanec, Associate Professor at Tsinghua University’s School of Economics and Management, told CNBC on Thursday that China’s economy is, in reality, probably growing at about 4 to 5 percent right now, hampered by a serious slowdown in investment by key industries.

China’s economy grew 7.6 percent in the second quarter and it wasn’t too long ago that it enjoyed double-digit growth rates.

“I think we are in a hard landing because, putting aside some of the official data, if you look at the numbers that are coming out on the micro level, the profit warnings are already higher than the levels that we saw in early 2009,” Chovanec said on CNBC Asia’s “Squawk Box,” referring to the global financial crisis.

“There are certain key industries that we can look to – steel, construction and equipment manufacturing – that are clearly in contraction right now,” he added.

Suning, China’s top home appliance retailer, and ZTE, a major maker of telecoms equipment, have both warned that profit for the first half of this year will fall by 30 percent and 80 percent, respectively.

Economic data on Thursday meanwhile provide further signs that perhaps China’s economy is slowing more quickly than anticipated.

Annual growth in China’s factory output slowed to 9.2 percent in July,the weakest in just over three years and below market expectations of a 9.8 percent increase. Retail sales rose 13.1 percent from a year ago, missing forecasts for a 13.7 percent rise.

China has slashed reserve requirement ratios (RRR) for banks three times since November and cut interest rates twice this year to bolster an economy that has slowed for six consecutive quarters.

“There’s no easy silver-bullet solutions in the form of stimulus,” he said. “The People’s Bank of China has a lot of imperfect tools. You’ve got interest rates which are way below what a market rate would be. If you lower those rates, you would end up channeling more financing into over-investment as opposed to really rebalancing the economy.”

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.