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Interview: China's manufacturing slowdown not to cause hard landing: U.S. economist

English.news.cn   2014-02-21 12:14:12

by Jiang Hanlu, Liu Fan

NEW YORK, Feb. 20 (Xinhua) -- China will maintain a reasonably high growth rate this year with slim chance of a "hard landing" although its manufacturing activity contracted for two consecutive months, a U.S. economist said Thursday.

The HSBC/Markit China flash manufacturing PMI for February dipped to 48.3 from a final reading of 49.5 in January, showing that manufacturing conditions deteriorated at a moderate pace this month, according to data company Markit.

"Tight credit and higher interest rates in the forth quarter of 2013 have made inventories more difficult to finance, prompting manufacturers to de-stock in February and generally slowing economic activity," William Adams, senior international economist at the PNC Financial Services Group, told Xinhua.

"Looking forward, January's record credit growth is likely to spur faster sales of Chinese manufactured goods later this year," he added.

Talking about implications of the weak manufacturing number to China's economic growth, Adams noted that data released around the Spring Festival are usually interpreted with some skepticism.

"But the fact is that the repeat of a weak PMI for a second month suggests that the economy has in fact slowed," he said.

Adams predicted that a 7.5-percent growth rate for China's economy in 2014 still seems reasonable, which is slightly lower than 7.7 percent last year.

"I think 7.5 percent is a growth rate consistent with China's potential. It's obviously the fastest growth rate in any major economy," he said. "Slow growth is a necessary condition for China's transition to a less-investment-dependent, less-export-oriented economy."

Moreover, an improving global manufacturing environment this year could also help support demand for Chinese manufacturers as well, said the economist.

"Inventory de-stocking may slow industrial production in early 2014, but the global manufacturing sector seems to be improving, judging from surveys of manufacturers in the United State, Europe and Japan," he said.

"I think stronger global demand is creating some space for the tighter macroeconomic policy that China's leadership is rolling out this year," he noted.

Adams said China is in the midst of a tricky transition from above-trend credit growth to a more stable macroeconomic policy, and it is making this transition as U.S. interest rates also start to normalize.

"Historically, that's been a risky backdrop for emerging markets like China. But China is entering this period with a strong labor market, moderate growth and a relatively competitive economy. So I think the probability of a hard landing still seems small," the economist noted.

The U.S. Federal Reserve has taken the first step in the normalization of its monetary policy by tapering its asset purchases since last December. And in the minutes of its January policy meeting released Wednesday, a few Fed officials raised the possibility of a "relatively soon" rate hike, which jittered U.S. markets.

"In past periods of rising U.S. interest rates, emerging markets have experienced volatility. So that is a risk we are watching closely in this period, too," he said. "So far China has weathered the change in U.S. monetary conditions well, but we are just at the very beginning of this period."

Adams pointed out that China's rate of growth right now is less worrying than concerns about asset quality and balance sheet in China for foreign observers.

Furthermore, China's income growth is another issue worth noting, he said. "As a tight labor market fuels income growth, that's what will sustain China's consumer market and consumption growth this year."

Editor: Zhu Ningzhu
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