China’s Quarterly Growth Far From ‘Hard Landing,’ Goldman’s O’Neill Says

Jim O’Neill, the economist who coined the term BRIC a decade ago, said China’s fourth-quarter growth rate, while the slowest in more than two years, was stronger than many analysts had forecast and was a “blow” to those predicting a “hard landing” for the nation’s economy.

China’s economy grew 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said yesterday in Beijing. That exceeded the 8.7 percent median estimate of 26 economists surveyed by Bloomberg News and is above the 8 percent that signals a “soft landing” for China, according to SinoPac Financial Holdings Co.

O’Neill, chairman of Goldman Sachs Asset Management, said in an interview on Bloomberg Television’s “InsideTrack” with Erik Schatzker that if China grew at an annual rate of 7.5 percent this decade, as he forecast, it would contribute more to world growth in dollar terms than the U.S. and Europe combined.

“It’s the most important thing in the world,” said O’Neill, who last month published his new book, “The Growth Map,” with predictions of “rosy prospects” for the BRIC nations of Brazil, Russia, India and China and other developing markets. “Some democracy a la Chinese style is going to emerge,” he said. “They want more freedom but they really want more wealth.”

One of China’s key economic challenges is its overheated property market. Yet China’s policy makers, by tightening monetary policy, managed to stem the property bubble, O’Neill said, something Western policy makers had failed to do before the subprime property meltdown that began in the U.S. in the middle of the last decade.

“China’s property prices have turned because Chinese authorities have deliberately stopped them,” he said. O’Neill said China’s authorities were raising wages to boost the domestic economy and move away from its dependence on exports, while seeking to address international concerns that its yuan currency is undervalued.

“There are two ways of dealing with exchange-rate issues, one is moving the nominal exchange rate; the second is to raise your prices and wages higher than everybody else, and the Chinese are deliberately doing that with wages,” he said.

The yuan traded at 6.3150 yesterday, compared with 6.3165 Jan. 16, according to the China Foreign Exchange Trade System. The People’s Bank of China set the yuan’s reference rate 0.09 percent stronger at 6.3250. It is allowed to trade 0.5 percent on either side of the daily fixing.

Regarding concerns that Greece may default, O’Neill said China’s economy generates the equivalent of Greek gross domestic product every four months. “Greece itself is not that important,” he said. “What is important,” according to O’Neill, is “how Greece deals with the restructuring or a default, which seems quite possible, and the contagion of that through the rest of Europe is extremely important.”

O’Neill said European markets had “sort of” shrugged off last week’s Standard & Poor’s downgrade of France and eight other European countries. He said it wasn’t clear whether that was because people perceived the European Central Bank is “going to be doing more and more” or there are “some signs of some stabilizing in the economy.”

To contact the reporter on this story: Bob Willis in Washington at [email protected]; Erik Schatzker in New York at [email protected].

To contact the editor responsible for this story: Christopher Wellisz at [email protected]