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Slower growth in China may not be great news for the global economy.
But evidence that Beijing is achieving a soft landing certainly should be.
Of course, last-minute turmoil could still blow the landing off course.
Conditions in the euro zone, China’s largest trading partner, for example, remain highly uncertain. A resolution to the region’s sovereign debt crisis continues to elude political leaders and, as the latest ZEW survey from Germany showed on Tuesday, the problem is swiftly undermining business confidence.
The relative importance of the euro zone to China is difficult to gauge, but in a recent study ANZ Bank concluded that the impact on China of a recession in the euro zone can be managed.
Problems for a soft landing could come from China itself, where inflation pressures remain elevated.
Although hopes are that price rises will soon subside there are still analysts forecasting that another rise in interest rates will be needed before the end of the year.
For the time being, though, signs are that the policies that Beijing has pursued to avoid overheating and prevent a hard landing are working.
Growth in the third quarter of the year slowed to 9.1% from 9.5% in the second quarter, taking it back to the slowest rate in two years.
The initial reaction in financial markets to news of the slowdown on Tuesday was negative. With the world economy still so highly dependent on China to help it from slipping back into recession, this knee-jerk response was hardly surprising with even the Australian dollar, which is so closely aligned to the fortunes of China, coming under selling pressure.
However, there are plenty of reasons for optimism.
Other data released at the same time showed retail sales in the country soaring by 17.7% in the year to September, even faster than August’s 17.0% increase.
Similarly, industrial production also accelerated, rising by 13.8%, from 13.5%.
Adrian Foster, an analyst at Rabobank in Hong Kong, summed it up rather well: “The improvement in both industrial production and retail sales in September relative to August suggests quite strongly that the economy is not further losing momentum. If anything it is gaining a bit.”
On top of that, fear over China’s property bubble may be overdone. Sure, the property market is weakening with the volume of business declining and new property loans falling sharply.
But with data showing that new home prices rose in 69 out of 70 Chinese cities, recent concern over price discounting may be premature.
As some analysts argue, Beijing probably doesn’t want to ease policy at this stage for fear of inflating the property bubble again.
If so, then Chinese rates may well remain neutral for now with Chinese growth moderating only slowly and the prospects for the world economy proving that much more positive than many initially feared.
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The Source is WSJ.com Europe’s home for rapid-fire analysis of the day’s big business and finance stories. It is edited by Lauren Mills, based in London.
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