Chinese growth could slow to zero in 2012

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Chinese economic growth could slow to almost zero next year, a former chief economist of Asia-Pacific markets has said.

Jim Walker, formerly of independent equity brokers CLSA and a founder of Asianomics, a consultancy group, said GDP growth in China will "significantly slow" to 0-3% cent in 2012. He forecasts growth of 7-8% for the second half of 2011.

Walker pointed to the problems in Chinese banks and the slowdown in Asian PMIs as reasons behind the world's second biggest economy's contraction.

Last week, HSBC's China Flash PMI showed the factory sector shrank for the third consecutive month in September. The index, which gives an early snapshot of the month's factory activity, dipped to 49.4 from August's final figure of 49.9. A reading below 50 indicates a recession.

"PMIs across Asia are signalling that expansion is losing momentum," said Walker.

He also dismissed China's previous strong growth and inflation figures. "China has inflated dramatically - that's how it's grown. It doesn't show up in its Consumer Prices Index inflation figures though as most of the prices in the CPI basket are government-set. You need to look at money and credit instead and there you will find inflation aplenty."

Walker added: "An inflationary bust is about to develop. End of story."

On China's stockmarket, Walker said that there are attractive yields on defensive blue chips, but cyclical companies look vulnerable. He forecasts further earnings downgrades across Asia as global economic problems set in.

Robin Parbrook, head of Asian equities at Schroders, is also bearish on China, highlighting bad debts in Chinese banks, white elephant projects (such as empty airports) and huge inequality in living standards.

"I don't think Asia will have a financial crisis but the banks need a lot more capital," said Parbrook. "There are some good stocks in China but in general they are horribly expensive."