Markets too pessimistic about China, argues economist Nouriel Roubini

THE man who predicted the US housing market crash that preceded the GFC has hit out at “manic-depressive” investors panicking over China.

Professor Nouriel Roubini from New York University speaking at the Diggers and Dealers Mining Forum in Kalgoorlie, Western Australia.

THE man who predicted the US housing market crash that preceded the global financial crisis has hit out at “manic-depressive” investors panicking over China’s market meltdown.

Nouriel Roubini, co-founder and chairman of Roubini Global Economics and professor at New York University, believes markets are being too pessimistic about Chinese growth.

Speaking at the Ambrosetti global economics forum on Italy’s Lake Como last week, Mr Roubini — referred to as ‘Dr Doom’ due to his notoriously pessimistic pronouncements — surprised many with his slightly more upbeat assessment.

He said the markets had swung from extreme optimism a few months ago about China having a “soft landing”, to the view that the country was now in “free-fall” and heading for a “real hard landing”.

“I think the markets are now becoming slightly too pessimistic about Chinese economic growth and the ability of the policy authorities to manage the growth slowdown, the movements of the currency and stock market,” he told Bloomberg News.

“My view has been all along that the Chinese slowdown is going to be a bumpy, rough landing, but something short of a real hard landing.”

China’s exports fell 6.1 per cent year-on-year to 1.20 trillion yuan (around $270 billion) in August, Customs said Tuesday, the latest figures showing weakness in the world’s second-largest economy.

But the drop was slightly ahead of the median forecast of a 6.6 per cent decline in dollar terms in a survey of economists by Bloomberg News, and an improvement from July’s 8.9 per cent fall in yuan terms.

Yesterday, China’s central bank governor and its market regulator admitted there were “bubbles” on the country’s stock exchanges, after a spectacular rally was followed by a painful bust, but says the turbulence is coming to an end.

The benchmark Shanghai Composite Index soared by more than 150 per cent in the year to June 12, fuelled by debt rather than fundamentals and encouraged by authorities.

It has since plummeted nearly 40 per cent, with official interventions to the tune of hundreds of billions of dollars failing to arrest the declines.

Mr Roubini said the Chinese authorities would continue to intervene, but needed to be more consistent with their economic policy.

“There is movement away from managing the key asset prices like the stock market, currency and interest rates, to letting them be more market-determined,” he said.

“That’s creating short-term pain in favour of more market determination of those prices, which will be positive in the long-term.”

He told The Telegraph the contractionary fiscal policies which have held back global recovery since 2008 were finally abating.

It’s a view shared by London-based Lombard Street Research, which last week argued China’s “grotesque economic distortions” over the past five years had actually hurt the world economy.