China's economy is already in a so-called “hard landing,”according to Adrian Mowat, JPMorgan Chase & Co.'s chief Asianand emerging-market strategist.

“If you look at the Chinese data, you should stop debating abouta hard landing,” Mowat, who is based in Hong Kong, said at aconference in Singapore yesterday. “China is in a hard landing. Carsales are down, cement production is down, steel production isdown, construction stocks are down. It's not a debate anymore, it'sa fact.” His team was a runner-up for best Asian equity strategistsin a 2011 Institutional Investor magazine poll.

The Shanghai Composite Index fell 2.6 percent yesterday, themost since Nov. 30, after Premier Wen Jiabao said home prices arestill “far from a reasonable level.” His comments fueled concernthe government will maintain restrictions on the property marketfor an extended period even as the curbs threaten to slow economicgrowth.

Wen announced at the beginning of a national lawmakers' congresson March 5 an economic growth target of 7.5 percent for this year,down from 8 percent over the past seven years. Data last weekshowed China's factory output in the first two months of the yearrose the least since 2009, while retail sales increased less thaneconomists predicted and inflation eased to the slowest pace in 20months. A report today showed foreign direct investment in Chinafell in February.

Mowat said in May the risk of a hard landing was building inChina as fixed-asset investment in real estate had increased evenas property demand remained weak. That meant residentialinventories will increase and lead to a contraction in constructionactivity, he said in a May 17 interview.

“One should be concerned about what's happening in the Chinaproperty market,” Mowat said at yesterday's conference. “People aretoo complacent that the government can turn what's going on in thismarket.”

The slump in Chinese stocks to Wen's speech yesterday was“overdone” as his comments on property were only a reiteration anddon't reflect consensus in the government, Jason Todd, global headof equity strategy at Religare Capital Markets Ltd., wrote in areport. The Shanghai Composite slid 0.7 percent today for thebiggest two-day loss since August.

Wen, set to leave office next year after a decade in power, alsosaid yesterday his nation must adopt political change to support aneconomic transformation that has produced rapid development at thecost of a widening wealth gap.

'Vastly Overblown'

Gary Shilling, president of A. Gary Shilling & Co., aSpringfield, New Jersey-based consultancy firm, said on Feb. 2 thatChina's economy is headed for a “hard landing” this year as weakerdemand overseas chokes off exports. Shilling, who correctlyforecast the U.S. recession that began in December 2007, defines ahard landing as a growth rate below 6 percent.

Shilling and Mowat's views are in contrast with Yale UniversityProfessor Stephen Roach, a former non-executive chairman for MorganStanley in Asia, who said on March 8 that concerns China will entera hard landing are “vastly overblown.”

“I don't think the banking system will collapse and the propertybubble will burst,” Roach said at a conference in Shanghai. “Theseare all exaggerations.”

China is easing restrictions on lending capacity at three of thenation's four biggest banks after new loans dropped to a four-yearlow, officials at the banks with knowledge of the matter said. Thegovernment's two-year effort to control the property market helpedspur a 25 percent drop in home sales in the first two months of theyear after surging 26 percent in January and February of 2011.

“What you can look forward to is to see a pickup in propertydemand that will clear up the inventory; that doesn't appearlikely,” Mowat said in an interview after the conference yesterday.“I don't see any evidence of a policy move that will cause theeconomy to reaccelerate.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.