China - A Hard Landing?

Investors have become almost obsessed with China's growth, jubilant when economic news is good, despairing when it's anything less than dazzling.  In part, this is understandable.  Since the brutal 2008-09 recession, US growth, though steadily positive, has been sluggish.  The Euro zone appears to be caught in the second dip of a double-dip recession, albeit this time a mild one.  Against this backdrop, China and the rest of the up-and-comers from the developing world are providing robust and reliable growth that is powering the world economy.

Skittish investors now fear that a main engine of global growth is slowing, with potentially dangerous consequences.  Responses ranged from disappointment to mild panic recently as China's first quarter GDP growth slowed to 8.1%.  Worse yet, the government has officially reduced its long-term growth target from 8.0% per year to a more manageable 7.5%.  Bear in mind that China has long grown significantly faster than its stated target.  Even taken at face value, though, are these more modest rates of growth really so vexing?

Perhaps not.  According to early estimates from the IMF, China's 2011 GDP was $7.3 trillion (USD) (1). From that base, even 7.5% growth, well below first quarter performance, would produce about $550 billion in added economic activity in 2012.  As a reference point, just this new growth is about the size of Sweden’s economy, and larger than the entire economies of Taiwan, Austria and Argentina.  Just four additional years at the same rate of growth and GDP in the Middle Kingdom will have ballooned to about $10.5 trillion by 2016.  Given how massive China’s economy already is, any sustained growth rate above 5-6% will ensure incredible opportunities for business, governments and workers.   Is that such a hard landing?   

Source: (1) IMF: World Economic Outlook Database, April 2012


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