17 reasons why China is heading for a hard landing

If you had any doubts about China's slowdown, here is a comprehensive list of reasons to dispel them.

Is China heading for a hard landing? We think so which is why we think you should steer clear of everything from most industrial commodities to Asia-dependent luxury goods firms. However, a good many of the people who commenthere disagree.

It is hard to tell much (except the general trend) from the official GDP numbers, so with this in mind, here's a list of reasons to think that all is not well in the economy the bulls hope will be the financial saviour of the West. If you have any more, feel free to add them.

1. The FT reports that Chinese buyers have deserted the Hong Kong art market. Six months ago, they accounted for around 44% of Sotheby's sales. That is now down to more like 20-25%. Kevin Ching, chief executive of Sotheby's Asia, noted that "there used to be five to six mainland Chinese individuals who would bid like crazy here, but they did not make any offer in spring sales." Sotheby's reported a net loss of $10.7m in the first quarter.

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2. ICIS.comreports that demand for polyethylene, which has long been "a very reliable leading indicator for the economy", is no longer rising but falling (down 6% overall).

3. The FT again reporting that Chinese buyers have started to "defer raw material cargos" in a "hand to mouth" market. Traders are reporting requests that cargo deliveries be deferred, but also an increasing number of defaults.

4. The Purchasing Manager's Index (PMI) is at a five-month low. Headline PMIs are also falling across the rest of Asia.

5. Electricity consumption is still up on last year, but it is now flat month on month this year.

6. The price of a bottle of Chateau Lafite is down 50% from its peak.

7. Rail cargo volumes are flatlining.

8. Cement demand fell in the first quarter.

9. The price of benchmark iron ore is down 9% from the end of last month.

10. Car sales are entirely flat (and fell slightly in the first few months of the year) and there are regular reports of prices being slashed."The best scenario is for annual car sales to remain flat, even if the automakers try harder in the latter half," said Zhang Xin, an analyst with Guotai Junan Securities Co (GJSZ) in Beijing.

11. Household consumption remains stuck at under 35% of GDP (still a record anywhere) making it pretty clear that there is not yet any real rebalancing from investment (around 50% of GDP) to consumption.

12.Graff diamonds has just pulled its Hong Kong IPO. It is the third company in a week to do so. The others? China Nonferrrous Mining Corp and China Yongda Automobiles Services.

13. In the first quarter of this year China's state steel companies saw profits fall nearly 70% on a year earlier.

14. Bank lending is sharply down total new bank loans were down 7.8% as of May 11 (year on year) and medium and long term loan volumes are 50% down on last year. The government has even conceded that the banks might miss their lending targets for this year.

15. Capital flight is rising fast. In January revenues at the casinos of Macau (this is the best way to move money out ofChina) were up 35%.

16. House prices in China saw their eighth consecutive monthly fall in May.In some areas of the market price falls of up to 65% are being reported, and even late last year falls of 25% in Shanghai were causing riots.

17. Stimulus. Given the levels of debt and overcapacity China is already saddled with it seems unlikely that the government would want to spend more if it was certain it was seeing nothing but a mild slowdown in growth. But the authorities have already given the go ahead to yet more infrastructure plans this week. Government spending in China was 27% higher in the first quarter of 2012 than 2011.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.