As the Chinese economy sees exports plunge in March, are fears of a hard landing justified?

Alessandro Theiss, an economist at Oxford Economics, says Yes

Slow starts to the year are not uncommon in China ­– and the timing of the Lunar New Year makes it hard to draw inferences from just a few months’ data. But plummeting exports and a contraction in import volumes suggest that Chinese domestic demand has weakened substantially – more than the Chinese authorities are happy with. An appreciating exchange rate will not have helped, and the correction in the real estate sector continues to dampen investment spending and output. Local government finances will also come under substantial pressure if central government is serious about reining in the expansion of off-balance-sheet financing vehicles. As a result, this year will be a challenging one for the Chinese authorities. They are unlikely to hit their 7 per cent GDP growth target. We are forecasting an average expansion of just 6.6 per cent. But there is a lot of room for monetary policy to be eased to stabilise demand and enable a managed slowdown of the economy.

Nick Beecroft, senior market analyst at Saxo Capital Markets, says No

We needn’t take fright at one month’s export data – especially this month’s. This slump is seasonal, happening every year in the first quarter, and is probably just a correction to February’s excessively rapid reported growth of 48.3 per cent. We need to grow accustomed to lower Chinese growth, as the economy rebalances from its former reliance upon investment and overseas trade to domestic consumption. We view China’s initiative to launch the Asian Infrastructure Investment Bank as its new Silk Road: a Chinese Marshall Plan, if you like. It’s a means to secure new markets through Eurasia, the Middle East, and down through Africa – a parallel with the boost to US influence and prosperity which the Marshall Plan brought after World War Two. When you retool a factory, you need to halt production (at great cost), but with $4 trillion in reserves and plenty of room to boost growth using both fiscal and monetary policy, we should not fret over China.

Related articles