Fears of a Chinese hard-landing are overdone, says Deutsche

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Following the release of more encouraging numbers, market fears of a hard-landing for China’s economy appear misplaced, says Asoka Woehrmann co-CIO of Deutsche Asset & Wealth Management.

Woehrmann asserts that he does not believe the growth rate of Chinese GDP fall below 7 per cent to 7.5 per cent.

He says: “Investor confidence in emerging markets is likely to recover gradually, but it will take time for recent outflows to be replaced in full.

”However, comparisons with the 1997 Asian crisis are excessive. Emerging markets are much better placed than they were sixteen years ago as regards debt levels, both in absolute terms and in the structure of the debt.”

Last week, the flash PMI estimate for China’s manufacturing sector reached a four-month high in August, surging from 47.7 in July, the weakest in almost a year, to 50.1.

Capital Economics chief Asia economist Mark Williams says: “The headline PMI has finally turned a corner after falling for four months in a row. This is its first time above 50 since April, when fears of a hard-landing started to gather pace. The pick-up is the largest single-month rise since April 2009.”

However Williams believes despite the data pointing to a more sure footing for the world’s second largest economy, he continues to believe that the rebound “will prove short-lived and that a further slowdown lies ahead”.

China’s GDP expansion rate slowed in the second quarter to 7.5 per cent year-on-year, down from 7.7 per cent.

Woehrmann says that while the Beijing government’s liberalisation and deregulation measures will have a negative impact on economic growth in the short term, they will be largely offset by current or future supportive initiatives, such as infrastructure projects and tax relief for smaller companies.

He adds: “Investor confidence in emerging markets is likely to recover gradually, but it will take time for recent outflows to be replaced in full. However, comparisons with the 1997 Asian crisis are excessive. 

“In many major emerging markets, GDP will fall in the short term. In the medium term, the outlook is generally positive as a result of increasing demand from industrialized countries. Weak exchange rates are also improving emerging markets’ competitiveness. Moreover, I believe that occasional increases in inflation in these countries will not necessarily spark a new cycle of wage hikes.”