Amareos

Ryan Shea

Thematic (Sector/Industry)

Despite Q3 Chinese GDP numbers coming out bang in line with the midpoint of the government’s growth target investor fears over the possibility of a Chinese hard-landing persist.One reason is the “uncanny stability” of China’s growth rate. It has been 6.7% y/y for three consecutive quarters, leading many to question the reliability of the data in capturing the true trajectory of the Chinese economy. Our crowd-sourced sentiment data should serve to alleviate concern that China’s official GDP data is masking a serious underlying growth deceleration.However, this is not the only reason investors fear a hard-landing scenario. Many also worrying about an overheating property market given Chinese real estate prices have surged over recent years. This is a much more valid cause for concern, in our view, especially in light of recent shifts in public perceptions towards Chinese real estate.That said, the real long-term question investors must ask is this: can China’s policymakers transition from the current debt-fueled investment-led economic growth model to a more balanced, sustainable growth model, or has long-run macroeconomic stability been sacrificed in order to maintain short-term stability?  Only when this question can be unequivocally answered in the negative will hard landing fears vanish.When asked in this way, it is clear that many policy options are ruled out, but one remains. And, as the soon-to-be announced Hong Kong-Shenzhen Connect scheme shows, it is one Chinese leaders are already embracing.

Despite Q3 Chinese GDP numbers coming out bang in line with the midpoint of the government’s growth target investor fears over the possibility of a Chinese hard-landing persist.One reason is the “uncanny stability” of China’s growth rate. It has been 6.7% y/y for three consecutive quarters, leading many to question the reliability of the data in capturing the true trajectory of the Chinese economy. Our crowd-sourced sentiment data should serve to alleviate concern that China’s official GDP data is masking a serious underlying growth deceleration.However, this is not the only reason investors fear a hard-landing scenario. Many also worrying about an overheating property market given Chinese real estate prices have surged over recent years. This is a much more valid cause for concern, in our view, especially in light of recent shifts in public perceptions towards Chinese real estate.That said, the real long-term question investors must ask is this: can China’s policymakers transition from the current debt-fueled investment-led economic growth model to a more balanced, sustainable growth model, or has long-run macroeconomic stability been sacrificed in order to maintain short-term stability?  Only when this question can be unequivocally answered in the negative will hard landing fears vanish.When asked in this way, it is clear that many policy options are ruled out, but one remains. And, as the soon-to-be announced Hong Kong-Shenzhen Connect scheme shows, it is one Chinese leaders are already embracing.

The China Connection