Don’t Count Out the Chinese Economy Yet

Nearly every trading day, there are scary headlines coming from all over the globe. Economic problems emanating from places like Europe and South Africa seem unending. The past several months have also seen more and more concern about the state of the Chinese economy. There are worries in the market whether China’s economy is not only slowing from double-digit growth rates, but that it may suffer a ‘hard-landing’ with very little economic growth over the coming months.

The concerns have been raised by some very prominent sources including the Asian Development Bank and the World Bank. They point to recent data which shows a significant slowdown is occurring. Some of these data points include manufacturing contracting for 11 straight months, export orders declining in September at the fastest rate in 42 months, and China’s purchasing managers index falling to its lowest level in nearly two years.

However, most China economic analysts believe the Chinese economy will still continue to grow at about a 7% rate. That is nothing to sneeze at. But the bears continue to insist things will get much, much worse there.

However, others disagree. Two international mining giants that sell a lot of metals to China – Rio Tinto and Vale – think Chinese economic growth will begin to re-accelerate soon thanks to increased stimulus spending. The managing director of Rio’s Australian operations, David Peever, said a few weeks ago that “There are some signs the slowdown may be reaching its bottom.”

Other emerging market experts agree. Emerging Money’s co-founder and CNBC contributor, Tim Seymour, concur that Chinese economic growth is poised for a rebound. He recently pointed to Vale, “They [Vale] is seeing the fourth quarter of this year as a turn in the cycle, and China returning to the table to buy core inputs such as iron ore and coking coal in bulk.”

Another expert, Richard D’Aveni – professor of strategic management at Dartmouth’s Tuck School of Business – recently returned from China and said that reports of its imminent demise are exaggerated and that its long-term prospects are still bright.

Part of the reason for Professor D’Aveni’s optimism is that he is impressed by the government’s ability so far to manage the transition from an export-led economy to one driven more by domestic demand. Demand in China for goods has been robust with retail sales up 14% despite all the overseas pessimism surrounding the economy.

In addition, the Chinese central bank (People’s Bank of China) has learned some lessons from western central banks. They have cut interest rates and have supplied the money markets with ample liquidity.

Consumer sentiment surveys taken in China are also a reason for optimism. The Pew Research Center’s Global Attitudes Survey, published in July, showed that 83% of respondents thought the country’s economic situation was good. This was far better than surveys taken by Pew in any other country and far above the 20% of Americans that held the same view.

This optimism should keep Chinese consumers, especially the growing middle class, spending. This should help keep the Chinese economy from falling off a cliff, as some are predicting.

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