Following on heels of yesterday's poor PMI reading in China comes this rather negative outlook from a mainstream financial firm.
Chinese Economy Already in ‘Hard Landing,' JPMorgan's Mowat Says
China's economy is already in a so- called "hard landing," according to Adrian Mowat, JPMorgan Chase & Co.'s chief Asian and emerging-market strategist.
"If you look at the Chinese data, you should stop debating about a hard landing," Mowat, who is based in Hong Kong, said at a conference in Singapore yesterday. "China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It's not a debate anymore, it's a fact." His team was a runner-up for best Asian equity strategists in a 2011 Institutional Investor magazine poll.
The Shanghai Composite Index fell 2.6 percent yesterday, the most since Nov. 30, after Premier Wen Jiabao said home prices are still "far from a reasonable level." His comments fueled concern the government will maintain restrictions on the property market for an extended period even as the curbs threaten to slow economic growth.
Wen announced at the beginning of a national lawmakers' congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years. Data last week showed China's factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months. A report today showed foreign direct investment in China fell in February.
Mowat said in May the risk of a hard landing was building in China as fixed-asset investment in real estate had increased even as property demand remained weak. That meant residential inventories will increase and lead to a contraction in construction activity, he said in a May 17 interview.
"One should be concerned about what's happening in the China property market," Mowat said at yesterday's conference. "People are too complacent that the government can turn what's going on in this market."
The slump in Chinese stocks to Wen's speech yesterday was "overdone" as his comments on property were only a reiteration and don't reflect consensus in the government, Jason Todd, global head of equity strategy at Religare Capital Markets Ltd., wrote in a report. The Shanghai Composite (SHCOMP) slid 0.7 percent today for the biggest two-day loss since August.
Wen, set to leave office next year after a decade in power, also said yesterday his nation must adopt political change to support an economic transformation that has produced rapid development at the cost of a widening wealth gap.