Gary Shilling expects a hard landing in China

Gary Shilling sees a hard landing in China as they try to deal with the bad debt problem there. But note, when he says ‘hard landing’, he says this would "knock their growth rate in half." That’s still almost 5% annualised GDP growth.

Video below

Also see the following series of articles on Bloomberg for more on his thinking:

  1. David Lazarus says

    I think he is wrong about reserves restrictions. Yes if used inefficiently they are not good but if used well they can be effective. If banks who made excessive home loans had their reserves depleted repeatedly for making loans then they would find it impossible to lend. Though if used with interest rates they can be even more effective rather than allowing interest rates alone to define investments. It did not work for Ireland or Spain. If the central bank wants to restrict inflation then it should raise raise a fraction but also demand reserves from banks that are lending excessively to a over heated sector of the economy. That way it does not penalise those banks that are lending for long term industrial investment.

    1. Oz says

      China’s trying to restrain credit growth by credit rationing rather than by properly setting the price of money (interest rates are clearly 3 or 4% too low in China)

      People on the ground (e.g. Michael Pettis) note that the rationing is causing banks to lend only to those they see as no risk – i.e. the state owned enterprises. They’re not using the credit for useful things, but the banks don’t care. Small and medium businesses (the lifeblood of a productive economy) are losing out and being starved of credit and pushed into bankruptcy.

      Very foolish policy…

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