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The Globe and Mail

Bank of America issues jittery China forecast

Residential buildings are seen in the Pudong district of Shanghai in this October 26, 2011 file photo. Property is a touchstone issue in the world's second-biggest economy, generating around 10 per cent of China's GDP. Besides would-be buyers and profit-hungry developers, local governments across the country rely on income from land sales to service debts estimated at 10.7 trillion yuan ($1.7-trillion) and fund construction of roads, railways and schools.


China may well still be headed for a soft landing but a "structural slowdown" in GDP growth has even previously optimistic economists uneasy.

"We're optimistic about growth in the region," said T.J. Bond, Emerging Asia economist with Bank of America-Merrill Lynch, in a briefing on the sidelines of the firm's New China conference in Beijing on Wednesday. "[But]I'm more worried about my outlook on China growth than I have been in several years."

Among the troubling indicators in China are high-profile debt crises in the cities of Wenzhou and Ordos, the former a traditional entrepreneurial centre, the latter a town rich on natural resources which built an entire adjoining city of luxury apartments and shops that remains largely uninhabited. Tightened bank lending in both cities has driven loan seekers to private lenders, whose unpayable rates have bankrupted dozens of businesses and driven many entrepreneurs either underground or abroad.

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The firm's analysts maintain these are relatively isolated cases and China is not on the verge of its own subprime crisis. But tightened bank lending and its impact on the economy is one factor in their lowered predictions for Chinese GDP growth, now sitting at 9.2 per cent for 2011 and 8.6 per cent next year, the lowest such numbers in a decade.

Also pushing those numbers down is the expected impact of Europe's debt crisis on sales of Chinese exports; Asian export growth overall is expected to drop by half to just over 10 per cent next year.

"We don't think there's going to be a hard landing but clearly China's economy will be growing at a slower rate than at any time in the last decade," Mr. Bond said.

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