This is the third in a series of blogs that looks at the risks of a Chinese hard landing. In the first we argued that China still has important defences in the form of fiscal space. In the second, we discussed why the odds of financial crisis are not that high. In this blog, we ask whether China sits on a property bubble, which tend to end in violent and drawn-out recessions.
History is littered with episodes where the rules of economics were declared dead, only for these rules to return with a vengeance. You remember the ‘end of the business cycle’ debate in the late 90s or the ‘great moderation’ paradigm of the early 00s? Despite these precedents and despite overwhelming evidence that large debt build-ups can end in tears, we believe a Chinese financial crisis is not that likely over the next 2-3 years.
Just as Hobbes’ Leviathan saves the people from the horrors of constant struggle and chaos, we ask whether the Chinese state can save the people from a hard landing.
We are fast approaching the Chinese leadership reshuffle in late 2017. Attention could turn from the current period of relative calm and stability to the medium-term challenges lying ahead. In this context, we are likely to encounter three myths about China’s growth slowdown.
Not deterred by my questioning last quarter, Tim has kindly returned to the quick-fire questions hot seat!
This quarter I ask about the risk of a China hard landing (as voted by you), what the risks are to growth globally, and why wage growth matters. The big question is really - for how long can the global economy remain at just the right temperature?
As I wrote in my latest client update, for much of the last century the United States has enjoyed a longstanding position of dominance within the world political system. However, we believe we are entering a new political paradigm and are moving towards a ‘multi-polar’ world, one where the US is joined at the top by other powers such as China. The US must find a way to share its global power, or risk falling into what is known as a ‘Thucydides Trap’. At present, President Trump is likely to continue to talk tough on trade but we do not think it will lead to a trade war, nor would this be in his interest. In recognising both the changing political as well as economic landscape, we believe investors can better inform their investment outlook.