Tags: Hard | Landing | China | Global | Disaster

WSJ: ‘Hard Landing’ by China Will Spark Global Disaster

By    |   Friday, 30 Sep 2011 12:26 PM

Chinese growth faces a "hard landing" that could lead to a catastrophe for global markets, according to The Wall Street Journal.

Economic growth in China could drop to under 7 percent a year, warns David Cui, a Bank of America Merrill Lynch analyst, reports The Wall Street Journal.

While that seems strong for many countries, for China it would be a hard landing.

For global markets already on the edge of a double-dip recession, it might mean catastrophe.

With an economy growing at 10 percent a year, China helped end the last recession after the 2008 financial crisis. Don't count on that happening this time.

Falling prices for metals, especially copper which has dropped almost 30 percent the last two months, indicate slower growth in China, as well as worldwide, according to the newspaper.

Markets are uncertain about what China's central bank will do, the journal reports. Although inflation appears contained, the bank is probably not ready to reduce interest rates to engineer a soft landing.

Also, if a eurozone debt crisis prompts a global recession, China may re-peg its currency to the dollar so its exports remain competitive.

Experts worry about the size of borrowing by local governments in China. But Credit Suisse analysts say unregulated private lending is a larger threat, according to a MarketWatch article.

They call the informal lending a "wild wave" that could dire results if not controlled, the article says. China's informal lending is about 8 percent of regulated bank lending and is growing about 50 percent a year, they estimate.

Much of that shadow lending finances real estate developments. Most developers, the analysts say, are unfamiliar with down markets, and many will run out of case within six months if the government doesn't loosen its monetary policy.

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Chinese growth faces a hard landing that could lead to a catastrophe for global markets, according to The Wall Street Journal. Economic growth in China could drop to under 7 percent a year, warns David Cui, a Bank of America Merrill Lynch analyst, reports The Wall...
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Friday, 30 Sep 2011 12:26 PM
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