It may be premature to assume that China’s growth will continue at its recent pace. Here are some thoughts on the topic.
1. The over-50 Manufacturing PMI number that everyone got excited about may be an aberration. Also a similar blip took place back on 2008 before the real slowdown.
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| China Manufacturing PMI (Bloomberg) |
Michael McDonough (Bloomberg Economist, Hong Kong): China's better than expected PMI is likely to be an anomaly, thanks to early Chinese new year. Forward looking components still below 50.An example of a forward looking component is the employment PMI (see chart).
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| China employment PMI (Bloomberg) |
2. Property correction is still in play.
3. Social unrest remains a risk.
4. GDP will have to move to more sustainable levels, which China is not used to. Here is a quote from ISI (International Strategy and Investment):
ISI: Real GDP slowing to 7.2%. We are below consensus. Soft landing. More monetary easing.Clearly we are not coming off the cliff, but it’s too early to assume it’s easy sailing for China.
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