That’s the question Jim O’Neill poses in his weekly letter, which is sarcastically titled Let’s Worry About Everything.
O’Neill, who is the reason why we say BRICs, argues that last week’s economic and corporate news was “benign” and that the market selloff seemed uncalled for:
Judging by the price action, market participants seem to be increasingly convinced of imminent recessions in Europe and the US as well as a prolonged period of “Japanisation,” in which positive GDP growth struggles to keep ahead of a weaker underlying growth trend.
If this prospect weren’t grim enough, the notion of a “hard landing” in China is back on people’s minds with a number of participants promoting the idea, and many newspapers honing in on challenges in the property markets and financial sector.
Concerns in Europe and the US aren’t news. But it feels like fears about China have come out of nowhere. O’Neill offers a little perspective on the matter:
“…But back in the surreal world of markets, my inbox was full of really gloomy stuff about hard
landings, property collapses, major NPLs and so on. As I said earlier, “what is the matter with everyone?”
It is pretty obvious that you will have some failed property lenders, where a country’s policymakers deliberately choose to stop a strong rise in property prices before it gets out of hand like the US and Europe, as the Chinese have done in the past 2 years. I can’t understand why it therefore translates into a “hard landing”. The Chinese property market has some issues because of deliberate policy. In fact, it is remarkably impressive, and a huge contrast to virtually any evidence I can see from my days in the markets, that a policymaker would choose to prick a property bubble before it gets to the stage that we all know only too well.
China, as I have written about now for nearly a year, has entered a new phase of development where the quality of growth matters more than the pure quantity, and with it, the sustainability of growth. This would suggest that the next 5 years would see an outcome closer to the 7.5 pct average, which the 5 year plan assumes…In the coming weeks, the key in all this will be Chinese inflation, and judging from the chart of agriculture prices that GS’s Yu Song sent me Friday, it is coming down. Once that happens, talk of a hard landing will dissipate”
O’Neill isn’t the only heavy-hitter who emphasises that China’s policymakers are deliberately cooling off the local housing bubble. Morgan Stanley’s Stephen Roach has said this. And so has JP Morgan’s Jing Ulrich.
O’Neill, Roach, and Ulrich all agree that the fear of a Chinese hard landing is ridiculous.