China’s Economy Faces 2009 ‘Hard Landing,’ Fitch Says

By Li Yanping

Jan. 16 (Bloomberg) -- China faces an economic “hard landing” and the risk of social unrest with growth slowing to 6 percent or less this year, the weakest pace since 1990, Fitch Ratings said.

James McCormack, the Hong Kong-based head of Asian sovereign ratings for Fitch, gave the estimate in a teleconference today.

That would be less than half of the 13 percent pace that pushed China past Germany to become the world’s third-biggest economy in 2007, according to revised statistics released this week. As many as 4 million migrant workers lost their jobs last year as factories closed and that figure may jump by another 5 million in 2009, according to Credit Suisse AG.

“The 6 percent number is already what we would call a hard landing in China, meaning rising unemployment and the need for an aggressive policy response,” McCormack said. “Social unrest is a big unknown.”

China’s economy, the biggest contributor to global growth, is running out of steam as exports wane and the property market cools before a 4 trillion yuan ($585 billion) stimulus package kicks in. The slowdown is hurting companies from toy, clothing and electronics makers to airlines and property developers.

The key one-year lending rate may fall to about 3 percent from 5.31 percent by the middle of the year and the government may also hasten spending, McCormack said.

Falling Exports

Exports may decline 6 percent in 2009 from a year earlier because of the global recession, he said. That compares with a 17.2 percent gain last year and the 2.8 percent drop in December.

China faces its biggest “employment adjustment” since reforms of state-owned enterprises in the 1990s, so social stability “is clearly an issue,” McCormack said. “There is a question of how easy it is to redeploy millions or tens of millions of unemployed factory workers to infrastructure construction products that may be located elsewhere in the country.”

Waning exports have led to protests by fired employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong last year, and an urban unemployment rate estimated at more than 9 percent by the Chinese Academy of Social Sciences.

Company sales and profits are falling. China Southern Airlines Co., the nation’s largest carrier, reported a “drastic decrease’” in demand last year and sales slid for China Vanke Co., the largest publicly traded real-estate developer.

The CSI 300 Index of stocks fell 64 percent in the past year.

The economy grew 9 percent in the third quarter of 2008, the slowest pace in five years, as recessions in the U.S., Europe and Japan reduced the appetite for Chinese goods. The fourth-quarter number is due next week.

Central bank Governor Zhou Xiaochuan and Liu Mingkang, the chairman of the China Banking Regulatory Commission, both acknowledged this week that the government risks missing its 8 percent target for creating jobs and maintaining social stability.

To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net;