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January 17, 2012

Goldman Sachs Says China fourth Quarter GDP a blow to Hard Landing Guys

1. Bloomberg - Jim O’Neill, the economist who coined the term BRIC a decade ago, said China’s fourth-quarter growth rate, while the slowest in more than two years, was stronger than many analysts had forecast and was a “blow” to those predicting a “hard landing” for the nation’s economy.

China's GDP in 2011 was US$7.49 trillion and is $7.8 trillion including Hong Kong and Macau.

China’s economy grew 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said today in Beijing. That exceeded the 8.7 percent median estimate of 26 economists surveyed by Bloomberg News and is above the 8 percent that signals a “soft landing” for China, according to SinoPac Financial Holdings Co.

Ff China grew at an annual rate of 7.5 percent this decade, as he forecast, it would contribute more to world growth in dollar terms than the U.S. and Europe combined.

“It’s the most important thing in the world,” said O’Neill, who last month published his new book, “The Growth Map,” with predictions of “rosy prospects” for the BRIC nations of Brazil, Russia, India and China and other developing markets. “Some democracy a la Chinese style is going to emerge,” he said. “They want more freedom but they really want more wealth.”




Cooling Overheated Markets

One of China’s key economic challenges is its overheated property market. Yet China’s policy makers, by tightening monetary policy, managed to stem the property bubble, O’Neill said, something Western policy makers had failed to do before the subprime property meltdown that began in the U.S. in the middle of the last decade.

“China’s property prices have turned because Chinese authorities have deliberately stopped them,” he said. O’Neill said China’s authorities were raising wages to boost the domestic economy and move away from its dependence on exports, while seeking to address international concerns that its yuan currency is undervalued.

“There are two ways of dealing with exchange-rate issues, one is moving the nominal exchange rate; the second is to raise your prices and wages higher than everybody else, and the Chinese are deliberately doing that with wages,” he said.

Regarding concerns that Greece may default, O’Neill said China’s economy generates the equivalent of Greek gross domestic product every four months. “Greece itself is not that important,” he said. “What is important,” according to O’Neill, is “how Greece deals with the restructuring or a default, which seems quite possible, and the contagion of that through the rest of Europe is extremely important.”

2. Bloomberg - Singapore’s exports unexpectedly rose in December as pharmaceutical shipments countered a drop in sales of electronics goods and the city state lured fixed-asset investment of about $S13.7 billion ($10.7 billion) last year, reports today showed.

Japan’s government maintained its assessment that the economy is still picking up from the March earthquake, with exports weakening recently because of slower global growth.

In the U.S., the Federal Reserve Bank of New York’s Empire State manufacturing index rose to an eight-month high of 11 in January, based on a Bloomberg News survey of economists before the report today. Inflation in the euro area and the U.K. may have risen at a slower pace in December from a year earlier, separate surveys showed.

Banks including BNP Paribas SA, Nomura Holdings Inc. and UBS AG forecast weaker economic expansion in China this quarter as overseas sales moderate further and government measures to rein in property prices hurt demand for goods including steel, cement and home appliances.

Sylvia Chiu, an economist at SinoPac Financial in Taipei, was the only analyst in the Bloomberg survey to predict today’s GDP number. She expects China’s growth to slow to 8.6 percent in 2012.

Chiu says reserve requirement ratios will drop to 19 percent by the end of 2012 and sees the benchmark one-year lending rate at 6.06 percent. The reserve ratio is currently 21 percent for the biggest banks and borrowing costs are 6.56 percent.

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