China's soft landing proceeds to plan
The Bank of China chief economist's forecast of China's June-quarter growth was a little more pessimistic than the Bloomberg average, but it also was correct.
Australians should be hoping he's just as prescient about what happens next in the world's second biggest economy.
The alleged market relief rally on the back of China publishing 7.6 per cent annualised growth for the latest quarter is as silly as most excuses for a Friday bounce, but it sounds much better than saying Sydney, at least, is enjoying a superb mild and sunny afternoon (which it is) when rain had been forecast (which it was).
With the average economist apparently guessing the figure would be 7.7 per cent growth, it had been enough to add Chinese bricks to the wall of worry being built about a global slowdown. So, on the face of it, 7.6 per cent should not be a reason for relief - unless the whole carry on about a sub-8 figure was a nonsense to begin with (which indeed it was).
With some perspective, 7.6 per cent still counts as being “about” 8 per cent - which would be a very healthy number for China to maintain once the headline seekers retreat from comparing it with the unsustainable double-digits of yesteryear.
More importantly, according to Mr Cao Yuanzheng of the Bank of China, that June quarter 7.6 per cent should be the bottom of China's soft landing. (The Bank of China is one of the country's big four commercial banks, and not to be confused with the central bank, the People's Bank of China.)
And Cao is much closer to the Beijing action and reaction than the various screen jockeys pontificating from dealing rooms on the other side of the earth and sometimes apparently relying on little more than what they've read online.
In an interview on the ABC's The Business program last night, the chief economist of China's biggest bank forecast the 7.6 per cent figure but said China should do about 8 per cent from this quarter. What was more reassuring was his reason:
“We think according to the Chinese experience, reform is the energy for the economic growth rate. So we urge the Government to introduce more reform measures, reform programs for this economy.”
And he wasn't just talking more interest rate cuts, although no-one's saying "no" to a little direct stimulus at this stage.
There is a push within China for more open financial markets that is the necessary next stage in the economy maturing.
The immediate course - changing from a growth model dependent first on exports, then on construction, into a consumption-based economy - is well underway.
The way Cao tells it, the Asian economic crisis taught the region the lesson of not relying on exports for growth, yet much of the commentary about China and the impact of the North Atlantic recession seems to assume that China remains export dependent. That's not true and hasn't been so for some years.
The BoC isn't as important as the People's Bank of China, but Cao's interview reflects the central banks' reform agenda. During the current period of leadership change, it's encouraging that the overhaul that agenda is being pushed by the retiring leaders.
That domestic consumption (but not real estate speculation) will be promoted over the rest of this year is a given. China still has a long way to go up the steel intensity curve so increasing consumption's share of the economy doesn't mean doom for iron ore exporters, it just means a stronger, more balanced and therefore sustainable China.
And the next phase, the deepening of the economy and financial markets, will add to that.
More power to Mr Cao.
Michael Pascoe is a BusinessDay contributing editor.