China inflation drops from 6.5% in July to 5.5% in October

China’s annual inflation rate fell sharply in October to 5.5 percent in a further pullback from July’s three-year peak, giving Beijing more room to fine tune policy to help an economy feeling the chill of a global slowdown.

Premier Wen Jiabao said prices had fallen further since October, adding to the view that policymakers will edge toward more pro-growth policies, although inflation is still too high to expect a cut in interest rates.

“As inflation worries ease, the room for fine-tuning monetary tightening is getting bigger,” said Ting Lu, an economist at Bank of America/Merrill Lynch in Hong Kong.

“Policymakers might still put taming inflation as a top priority, but we will see policies to be increasingly nudged toward pro-growth.

China’s Producer Price Index (PPI), a main gauge of inflation at the wholesale level, rose 5 percent year-on-year in October, the National Bureau of Statistics (NBS) said Wednesday.

The reading eased from a growth of 6.5 percent in September.

Arguments against a hard landing in China

Forbes has an article against a hard economic landing in China and counters the main claims.

1. Claim China’s economy will disappoint in 2012 and go very bad in 2013 onwards.

The International Monetary Fund’s economists forecast GDP growth of 9% in 2012 compared to 9.5% in 2011 and 10.3% in 2010. This is counter to predictions that China be at 8.7% in 2012 and then 6.6% or less in 2013-2017 Economist Roubini and others worry that the outlook after that is bleaker. He thinks China’s growth could sink to 5 percent or less in 2013 or 2014.

2. Claim The China housing bubble is bursting.

Counter – The Wall Street Journal reported that as much as 25% of China’s economy may be tied to real estate and related industries, so a steep correction in housing is not only bad for banks, it’s bad for steel makers, construction workers, and employment in general. While there has been some steep price declines of as much as 30% on new home prices, China’s real estate prices are declining slowly. According to the National Bureau of Statistics, prices have stabilized from August to September in expensive Beijing, Shanghai and Shenzhen for properties of all sizes. But year over year, China’s real estate is still more costly in nearly every city in the country except for luxury apartments in just three cities, according to the Bureau’s price index data released last month.

3. Claim China’s housing bubble worse than U.S. housing bubble.

Counter – Chinese first time buyers must put down 30% deposit and the banks are not as leveraged as US banks were in 2008.

4. Claim – China’s Real Estate will wipe out chinese banks.

Counter – Liu Mingkang, chairman of the China Banking Regulatory Commission said that China property prices are correcting, but that stress test results showed that the commercial lenders could handle as much as a 40% decline in real estate values. Non performing loan ratios at China’s top four state controlled banks are all under 2% as of the third quarter of 2011.

5. Claim – China doesn’t have a grasp on inflation.

The just released numbers show China’s inflation continues to drop

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