Australian economist Ross Garnaut once commented on predictions about the Chinese economy: "Pessimists are more scholarly, but optimists are often right". He noted that there had been continuous calls for collapse or stagnation of the Chinese economy since the beginning of economic reform. Meanwhile, more upbeat predictions by Dwight Perkins of Harvard University, Justin Lin of Peking University and himself had been repeatedly beaten by the actual performance of the economy.

Forecasts of GDP growth during the global financial crisis provided a good case study. At the beginning of 2009, most market economists forecasted full-year GDP growth at well below 8%. Those who stuck to above 8% forecasts were under pressure from their colleagues and the market. The actual GDP growth in that year was 9.2%, revised up from the initial print of 9.1%.

We do not underestimate the value of pessimistic calls since they help focus investors' and policymakers' attention on important risk factors. But if pessimistic expectations have not materialized for decades, there might be something unique about the Chinese economy that does not fit the conventional analytical framework. After all, China is not a typical market economy. Given China's underdeveloped legal system, widespread distortions in incentive structure and state intervention in economic activities, who would have predicted the thirtyyear economic miracle?

There is probably disproportionate incentive for analysts to make pessimistic calls, since they make it easier to get investors' attention. And sooner or later these pessimistic calls, such as the collapse of a housing bubble, will turn out to be true. The trouble, however, is that waiting for that to happen might prove to be very costly for short-sellers. If investors had positioned for 4.5% GDP in China in 2009, for instance, they probably would have recorded significant losses. Again, some commentators have been calling for a collapse of China's property markets since 2004. Investors would again have lost significantly had they followed such investment advice.

David Fuller's view Everyone seems to have a view on China's property market and most in the west appear to be bearish. This report, prepared by Chinese analysts, is the best that I have seen on the subject. Also a good read, I commend it to you.

While the authors cover just about every possibility, they lean towards the controlled landing, this time.

That tallies with the Fullermoney view previously stated. Briefly, China's monetary officials were quick to recognise the bubble following their massive monetary reflation in response to the global stock market crash in 2008. Using a gradualist approach, they have been attempting to rein it in during the last two years. They have had some success in this effort although less so in the largest cities such as Beijing and Shanghai.

Some smaller property companies and individual speculators may be overleveraged but this does not appear to be true of the larger companies or households with a single home. Meanwhile, China's economy continues to grow and incomes are rising. This also reduces the risk of distress selling.