The Chinese aren't expecting a hard economic landing

Financial markets continue to fret about the outlook for China, the world’s second largest economy, behind the United States. And increased scrutiny on data releases especially when below analyst expectations is creating a mindset among investors that the economy is heading for a so-called hard landing.

Those fears have manifested themselves across financial markets of late, causing risk assets to come under periods of significant selling pressure. Stocks, commodities, corporate debt and higher yielding currencies have all been hit, intensifying concerns among investors.

However, as seen in alternate surveys, the slowdown fears rattling financial markets aren’t being shared by the Chinese themselves.

According to a recent survey of 1,200 Chinese consumers conducted by McKinsey & Company, the recent stock market correction – something that saw mainland indices lose more than 40% in just two months – appears to have had little impact on sentiment towards the outlook for the economy.

“The results indicate a more upbeat picture than most have expected,” wrote Alan Lau and Nicolas Leung, analysts at McKinsey.

“For some segments of Chinese consumers, the recent economic turmoil appears to have had little impact. Heavy online shoppers, people in their 30s, and consumers living in Tier-1 cities are among the most optimistic: approximately 10% more consumers in these groups say they are confident about where the economy is heading and appear less jittery about the prospect of an economic slowdown in the immediate future.”

The chart below from McKinsey reveals consumer confidence levels both now and in the future. The survey asked consumers to rank the outlook for the economy on a scale of 1 to 10, with the latter being the most optimistic reading possible. The views presented in the chart are for responses of 8 or higher, or those who are most optimistic.

Clearly the fears expressed by those outside China are not being replicated by those within. People in large cities, aged between 25 to 34 years – the very group who will be tasked with powering China’s economic transition away from infrastructure and industrial led growth to that powered by consumption and services – are the most optimistic of all consumers.

They’re people who are on the ground, rather than speculating on what is happening from many thousands of miles away. If they are optimistic, perhaps it’s time for those outside to rethink the pessimism constantly associated with the Chinese economic outlook at present.

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