The road to recovery
Property matters as much as infrastructure
􀂃 Given the sharpness of the slowdown in recent months, there is little value in
debating whether China will suffer a hard-landing – 4Q08 growth of 6.8%
shows it already has. More useful now is to identify whether this crash marks
the start of a sustained period of low growth and deflation a la the late 1990s
and early 2000s, or whether the economy can bounce back later this year.
􀂃 Today we embark on a series of reports to detail our assumption of a 2009 pickup.
We kick off with a recap of China’s economic drivers, and sketch the
elements needed for revival: a reallocation of savings, counter-cyclical banks,
and quantitative easing (QE). By feeding inflationary expectations, QE and
lending should drive savings from banks, reviving house sales and construction.
􀂃 Last week we tackled counter-cyclical banks, and our next reports will look at
QE and the flow of savings. Our series will include a detailed analysis of two
major potential obstacles on this journey, property inventories and the
informal financial market. As for the criticism that quantitative easing is as
untried in China as it is in the US, we offer transparency in reply. There are
clear road signs of whether the economy is on our recovery track, including
loan growth, liquidity preference and the performance of the A share market.