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China faces a `hard landing' next year: research company

China's economy faces a "hard landing" as US consumer spending ebbs and companies curb investment in factories, according to Diana Choyleva, an economist at Lombard Street Research.

The London-based research firm forecasts China's GDP will expand between 5 percent and 6 percent next year, the slowest pace since 1990.

The economy grew 9.9 percent last year to US$2.3 trillion, overtaking the UK as the world's fourth largest.

"The mismanagement of development in China results in violent cyclical swings," Choyleva told a debate in London. "As a result, we get overinvestment at the same time as overheating. Once demand and productivity slow, the lack of profitability is revealed and the house of cards collapses."

Choyleva argued that China's state-run banks have been lending too much for inefficient factories that lose money after accounting for asset depreciation. Slower economic growth in the US may reduce demand for Chinese goods and make more projects unprofitable, she said.

Roger Bootle, the founder of London-based research group Capital Economics Ltd and a former adviser to the UK Treasury, told the debate that Choyleva is too pessimistic and that China's economy probably will expand 7 percent to 9 percent during the next few years.

"China's rapid growth is not a flash in the pan," Bootle said.

China's expansion is sustainable because growth per person has lagged the pace of booms enjoyed by South Korea, Japan and Taiwan since the 1950s. Since 1977, China's annual expansion has averaged 9.7 percent, he said.
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