China’s hard landing

China's hard landing

All signs are pointing to a hard landing in China. The Chinese economy is contracting and the world will pay the price.

During the week, Chinese Premier Wen Jiabao revised China's growth from 8 per cent to 7.5 per cent.

As Bloomberg reports, JP Morgan has already declared that the hard landing has begun. Adrian Mowat, JPMorgan Chase & Co.'s chief Asian and emerging-market strategist has put it bluntly. "If you look at the Chinese data, you should stop debating about a hard landing,'' Mowat said. "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."

Alarmingly, as reported here, the Chinese government is easing up on the capital requirements for the Chinese banks, letting them ease up more of their deposits to make loans. That's frightening because Chinese banks are, as Reuters reports, facing a huge capital shortage and no one at the moment has been given any idea about the size of the funding gap. But it will be big. If Chinese banks are going to get through this hard landing, they will need to have more cash available, not less.

Photo source kalleboo

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