Do You Like Your Landings Hard, Soft or Bumpy?

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Despite attempts to slow the economy, fixed asset investment has continued to grow rapidly in the first five months of the year, according to reports. The BBC notes that “China said spending on fixed assets like buildings and machinery rose 30.3% in the first five months of 2006, compared to the previous year.” Fixed asset investment in town and cities reached RMB2.54 trillion (US$318 billion) in the period. There are fears that this growth could lead to over-capacity and damaging competition – as well as loss of profits and jobs (see “Profits Squeeze may Hit Growth“).

Industrial production is already on the rise, and the IHT reports that factory output was up a higher-than-expected 17.9 percent on May last year (RMB706 billion or US$88 billion), the highest rise in two years. IHT adds comment on other indicators, all with the same message:

    “reports in the past week have shown faster-than-expected gains in exports, retail sales and money supply, suggesting that the economy is not about to slow.

    Exports in May rose 25.1 percent to $73 billion, leading to a record $13 billion trade surplus, the customs bureau said Monday. Retail sales expanded 14.2 percent in May from a year earlier, the fastest pace in 17 months.

    Consumer and producer inflation were higher than economists had expected, at 1.4 percent and 2.4 percent respectively.

    M2 money supply grew 19.1 percent through May, the most since January and above the central bank’s 16 percent target, the bank said Wednesday. A report due Thursday is expected to show that urban fixed-asset investment jumped 29 percent through May from a year earlier, according to a survey of economists.“

Julian Jessop, chief international economist at Capital Economics, is quoted by the BBC as saying: “The best way to avoid a hard landing in 2007 or 2008 is to start deflating that investment bubble now.” The comment reminds me of something William Overholt (China watcher and author of “the Rise of China”) said back in the mid 90’s. It was something along the lines that China would not have a hard or a soft landing, but would most likely have a bumpy one!

Watch out (and hold on) to see what sort of a landing we get this time round.

See news source:

    China’s investment boom worries
    BBC News – UK
    China said spending on fixed assets like buildings and machinery rose 30.3% in the first five months of 2006, compared to the previous year. …

    China reports surge in industrial output
    International Herald Tribune – France
    BEIJING BEIJING: China’s industrial production rose the most in two years in May, the government said Wednesday, reinforcing expectations that the nation’s …

2 Responses to “Do You Like Your Landings Hard, Soft or Bumpy?”

  1. Archive » Don’t Quote Me (On the Economy)| China Business Blog Says:

    […] uing heat in the market. While the GDP debate has often focused on whether there will be a hard, soft of bumpy landing, Standard Charted have come up with a different view. Their China ec […]

  2. Archive » A (2007) GDP Restatement & A Bumpy Future.| China Business Blog Says:

    […] these days it is William Overholt’s 1990’s comment springs to mind again…that China would not have a hard or a soft landing, but would most […]

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