Pondering the Unthinkable: How A Chinese Economic Crisis Would Unfold

“Improving Chinese economic data have many experts saying that the economy has bottomed out, and that the possibility of a hard economic landing is off the table.

Societe Generale’s Wei Yao expects Chinese GDP to increase 7.4 percent this year.

However, Yao thinks there still is a “non-negligible risk” of a hard landing in which GDP growth falls to less than six percent. Remember a hard landing refers to four consecutive quarters of below six percent growth – which is the minimum needed for a stable job market and to avoid “systemic financial risk”.

In a new report titled “What If China Lands Hard?” Yao writes that clients they surveyed expect growth of between 5.5 – 7.0 percent in the worst reasonable case.  Yao thinks it could drop much lower to about 4 percent.

So what would could cause a hard landing? According to Yao, a major trade shock, inadequate government investment from Beijing, or a sharp property market correction prompted by tight policies could all send China’s economy spiralling.

And how would this scenario play out? From Yao…”

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