Analysis: Politics cushion China's economic hard landing risks
By Nick Edwards
BEIJING (Reuters) - The politics of China's need for a smooth leadership succession this year provide the best protection against a hard economic landing, regardless of stuttering exports, faltering capital flows, local government debts and lingering inflation risks.
By the time President Hu Jintao and Premier Wen Jiabao are handing over power in the late autumn, China should be well on course for its slowest full year of growth since they took office a decade ago -- and that's without any economic shocks.
It's not an auspicious bequest in a system that relies on stability to justify the one-party rule of the Communist Party and is precisely why any significant threats to the economy will be met with an unmistakable policy response.
"That is the only line of thinking," Paul Markowski, President of New York-based MES Advisers, a long-time investment adviser to China's monetary authorities, told Reuters.
"While financial risks abound, the composition of debt ownership means the government can brush off hard hits for now," he said.
Government debt is 26.9 percent of gross domestic product according to IMF data, well below the 60 percent seen as the international threshold for stable state finances, and 2011 fiscal revenue was a record-breaking 10.37 trillion yuan ($1.64 trillion) that produced a tiny 1.1 percent of GDP deficit.
Even allowing for the bad debts in the $1.7 trillion owed by local governments, the $200 billion or so of non-performing loans analysts believe the big state-backed banks are nursing, and any other miscellaneous restructuring costs, the most gloomy forecasts barely get gross debt up above 60 percent.
That said, there are few signs of willingness to repeat the 4 trillion yuan stimulus unveiled in 2008/09 at the height of the global financial crisis as international trade, on which much of China's growth and employment depends, froze. Continued...