The authors of this paper don’t mince words. China can’t escape a hard landing. Why? One of their most compelling arguments is that few before have managed it. The historical precedent of economies that come off a rapid-growth-plateau is for a similiarly rapid adjustment to lower norms; why should China be any different?
Assesing the Impact of a Chinese Hard Landing on Commodity Exporters
Monsieur Ludovic Gauvin of EconomiX-CNRS & Banque de France and co-author Monsieur Cyril Rebillard of the Banque de France add over-investment, credit growth and the pricking of the real estate bubble to their argument and predict a rapid adjustment to 3% growth for the next 5-years. Starting? Somewhat worryingly, about now.
The full title of the paper is ‘Towards Recoupling? Assessing the Impact of a Chinese Hard Landing on Commodity Exporters: Results from Conditional Forecast in a GVAR Model’ and they go on to predict in their most-likely-scenario (they concede the possibility of soft landing but quickly dismiss it) the knock on impacts for the world’s biggest commodity exporters.
The paper bounces around in terms of focus but the main points in order (I think) are these: China hard lands, the knock on to developing economies is hard too, growth slows there and we see developing economies’ much higher growth rates as merely a parenthesis as, ahead, their growth rates come down closer to developed economy norms, thus ‘recoupling’.
If you have time to open the paper you’ll find the longer hard landing argument on P.4, their conclusion on P.20 and then some interesting summary tables and charts in the appendix which begins on P.25.
I found the argument especially interesting as the paid-for-comment China perma-bear caucus seem to have softened their collective view recently. Maybe the whole argument will turn out, in the end, to be a grand irrelevance (my own view, for what that’s worth!)? We will, of course, see.
Happy Sunday