Don't write the China obituary just yet, says Eric Lascelles, chief economist at RBC Global Asset Management in Toronto. There are still many rabbits to be pulled out of this magic hat.
"I think there is enough evidence that China is heading for a soft landing simply because the country has a lot of levers to pull and an enormous labor pool it controls," he says.
A number of fund managers like Jim Chanos and economists, including Nouriel Roubini, say that China's economy is either crash landing, or risks a crash landing within the next three years if it does not control spending on fixed investment like real estate.
There are a number of reasons to make the claim that China's slowdown may be out of Bejing's control, especially in the residential housing market, which is starting to cool after years of nearly doubling in price in key cities like Shanghai.
"You can look at China and make the case that it didn't deserve to grow at 10% or more repeatedly year over year. Compared to a place like India, it has costlier labor and doesn't speak English," Lascelles says.
China spent over $700 billion stimulating its economy after the 208 economic crisis hit the U.S. and Europe. Much of that went to fixed investment like commercial and residential real estate. Money was lent to states to invest and some of that went to projects that have not paid off. Small and mid-sized developers are losing money. Some will go bankrupt.
"Still, I would say that China has the power to just forgive those loans and band-aid the situation if needed to protect its economy from a hard landing," he says. "The credit bubble in China is not the same as the one we experienced in the U.S. That popped because of mortgage backed securities and collateralized debt obligations and those markets don't exist by comparison to the U.S. "
Lascelles says that the ongoing sovereign debt crisis in Europe means big risk for emerging market investors, including investors buying Chinese equities. "Given the circumstances, the safest way to invest in these markets is in dollar bonds in Asian and Latin American economies," he says, without singling any one nation's bonds over the other.
"China is slowing, but they have done reasonably well over the last three years even with the U.S. and European economies in recession," he says.
See: Why China Hard Landing Is Closer Than You Think--UK's Money Week
Dismantling The China Hard Landing Narrative--Forbes
China Inflation Cools In October; Economists React--The Wall Street Journal
