Early this year, everyone was talking about the vaunted Chinese “hard landing” and how it was finally here.
And yet in recent months, Chinese economic data has been consistently better than expected. PMI readings show a manufacturing sector returning to health, while retail and power use measures have als been pretty positive.
So the question is: Can it last?
In a brief note to clients, Morgan Stanley’s Helen Qiao says it’s unlikely to last.
She gives three quick reasons:
Is this rebound sustainable? We do not hold high expectation that this growth rebound will last long, as the favourable low base from last year will dissipate soon. In addition, headwinds will likely strengthen in early 2014, as: 1) the temporary boost from restocking demand and business confidence will likely taper off; 2) the hurdle for policy easing is harder to reach after the recent rebound; and 3) the potential weakening in EM demand may become a drag, despite a mild DM recovery.
Ultimately, she isn’t too worried about China, even if the upturn in data doesn’t prove to be durable.
There is a rebalancing, she argues, going on towards more consumption, and there is a lot of necessary investment yet to do, which should keep something of a floor on economic activity.
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