China Runs Risk of Hard Landing, Needs Lower Rates, Carlyle Says

  • PBOC should lower ``very, very high'' interest rates, he says
  • Don't underestimate China's ability to meet challenges: Conway

China’s economy will keep slowing and the question is whether it’s headed for a bumpy or a hard landing, according to Carlyle Group LP co-founder Bill Conway.

“There is no smooth, everything-goes-great landing,” Conway, who helps oversees $193 billion of private equity holdings, real estate, credit assets and hedge funds as chief investment officer at Carlyle, said at a conference in Seoul on Thursday. China’s central bank should lower interest rates, which are “very, very high” in real terms, he said.

Premier Li Keqiang has said that China needs annual growth of at least 6.53 percent over the next five years to achieve its target of a “moderately prosperous society,” according to people familiar with the matter. Official data showing expansion of 6.9 percent last quarter are at odds with models used by researchers, Bloomberg economists Tom Orlik and Fielding Chen wrote on Oct. 27. Real growth may have been as low as 2.8 percent, they said.

A premature increase in U.S. borrowing costs would raise the risk of a hard landing, said the Washington-based Conway, adding that the Federal Reserve may tighten in December not because it should, but because it said it was going to do it.

Bumpy Landing

A “bumpy landing” in China would involve a gradual slowdown in growth as the nation transitions to a more consumer-oriented economy, said Conway. Even in this scenario, expansion will be hurt, he said.

Conway said he still sees opportunities in China. Policy markers’ ability to address the nation’s challenges should not be underestimated and money invested today is likely to be worth more in 10 years, he said.

“We do expect growth globally to be fairly muted, interest rates to stay low, the dollar to be strong and get stronger and we expect energy prices to stay low for a long time.”