News Analysis: "Hard Landing" Imminent in China's Economy?

Even with first-quarter growth at 9.7 percent, worries of a "hard landing" of the world's second largest economy begin to emerge, as the government switches from stimulating to deflating the economy.

Private business aren't making the money they used to. Production costs are rising and borrowing has become harder as the government has hiked interest rates and raised the reserve ratio for banks amid high inflation.

The manufacturing sector PMI released by the National Bureau of Statistics, a key measure of the outlook for industrial growth, dropped to 52.9 percent in April, down from 53.4 percent in March.

The value-added industrial output grew 13.4 percent in April, 1 percentage point lower than a month earlier.

The economic data suggests the probability of hard landing is building in China, according to JPMorgan Chase.

However, Fan Jianping, chief economist with the State Information Center, contended a hard landing is unlikely.

The situation in China is not like that which followed the U.S. credit crisis in 2008, rather it's the result of the macro-economic regulation, he said.

China's growth decelerated to 6.7 percent in the first quarter of 2009, as the global financial crisis sapped demands for Chinese exports.

"Such drastic slowdown would not repeat today, as the global economy is on the track of mild recovery and the external demand is at a healthy level," said Peng Wensheng, chief economist with the China International Capital Corporation.

He predicted China's GDP growth would slow to 8.4 percent in the fourth quarter of the year. However that can not be recognized as a hard landing.

Lian Ping, chief economist with the Bank of Communications, said robust growth in the fixed-assets investment and trade surplus do not support the possibility of hard landing.

He estimated the economy would grow by nearly 10 percent in the second quarter from a low comparison basis a year ago.

Fears of hard landing drove China's stock market down by nearly 3 percent on Monday after the China Manufacturing Purchasing Managers' Index compiled by HSBC fell to a 10-month low of 51.1 in May.

Qu Hongbin, HSBC's Chief Economist for China, said that the PMI data was consistent with the growth of industrial output and GDP, while the "hard landing" concern is unnecessary.

Economists agreed the top priority of Chinese economy is to fight against inflation.