China: is bad news good news again?

May 29, 2012 / By

The China April economic data was almost universally bad and this has a lot of analysts suddenly very concerned that the long feared ‘hard landing’ is underway. Among our clients in China, the mood is decidedly less apocalyptic than in the Western media. From my perspective, it’s too soon to say if April was just a blip in the data or a portent of things to come.

The prevailing view on the ground seems to be that if the Chinese economy has in fact taken another leg down toward slower growth, with y-o-y GDP growth for 2Q12 potentially in the low 7s or even down into the 6s, there will be increased urgency for the government to undertake stimulative measures to boost growth. This is the ‘bad news is good news scenario’ where stimulus leads to stronger growth in the second half of the year.

I believe it is for this reason that we have not seen any of our clients putting their China plans on hold or turning more cautious about implementing their 2012 objectives. By clients I am referring to occupier clients – domestic and MNC companies in industries such as auto, pharma, hi-tech, FMCG, retail, and professional services, among others – as well as investor and developer clients. Groups with a stake in the ‘real’ economy who are trying to capture domestic market share in what are still fast growing industries.

In short, most of our clients are working with the view that either the economy is slowing quickly enough for the government to get serious about enacting stimulus or things aren’t as bad as the last batch of data suggest. And in either case, things won’t get much worse before they get decidedly better. Our base-case scenario for China in 2012 remains flat first half, stronger second half. The April data has not shaken our view on that forecast.

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