Another year of stable economy and volatile markets

2012 could be another year of coexisting volatile markets and a stable economy.
Perennial bears calling for a hard-landing in 2011 could turn even more bearish in
2012, and China’s rising importance may prompt others to look for skeletons in
the closet. However, growth may turn out to be quite stable as both existing and
incoming leaders are trying to deliver stability in 2012, which is a key year of
leadership change. Key risks to China in 2012 are the Eurozone’s debt crisis, the
domestic property sector and security of oil imports.  

What can we learn from 2011?
In early 2011, the markets were worried about runaway inflation, implosion of government debt, unfettered shadow banking and growth hard landing. In Sep, there was even fear that China was on the brink of a financial and government debt crisis. As things panned out, inflation tamed to 4.1% by end-2011, annual GDP growth was a handsome 9.2%, the slowdown moderated (4Q11 growth: 8.9% YoY), and the chance of the Chinese economy crashing is now remote, in our view.