Pace of slowdown stabilising in China
FOR THE 11th month in a row, manufacturing in China contracted in September. The HSBC Flash China manufacturing purchasing managers’ index (PMI) slowed and the world’s second-largest economy is on track for a seventh successive quarter of slower growth.
The PMI showed activity stabilised in September after hitting a nine-month low in August, with the headline reading ticking up to 47.8 from 47.6 last month, but the index has been below 50 for nearly a year now, and that has analysts worried that a hard landing could still be in the offing.
“China’s manufacturing growth is still slowing, but the pace of slowdown is stabilising. Manufacturing activities remain lacklustre, thanks to weak new business flows and a longer than expected destocking process,” according to Qu Hongbin, chief economist for China at HSBC.
Many economists have lowered their forecasts for China after weak July and August data, with full year growth expected to drop below 8 per cent for the first time since 1999.
“Today’s flash manufacturing PMI from HSBC and Markit provides signs of stabilisation in China’s economy but not of recovery,” Capital Economics analysts Wang Qinwei and Mark Williams wrote in a research note.
“These figures have strengthened our conviction that economic momentum is stabilising, but the current level of new orders does not point to an imminent rebound. With today’s euro-zone flash PMI extremely weak, expectations for a pick-up led by global demand should be low,” they said.
Trade figures are also poor, as rising inflation in China and the debt crisis in Europe weighs on exports. China’s exports increased by 2.7 per cent year-on-year in August, up from one per cent in the previous month but still below the three per cent forecast.
“Because of the continuing global economic downturn, China will see weaker external demand in the next few months of this year than it had seen in the first eight months,” said Ministry of Commerce spokesman Shen Danyang said.
“Although faced with a mountain of difficulties, we will still try to achieve our goal of having trade increase by 10 per cent, which we had set at the beginning of this year.”
But most analysts believe that weak demand in the domestic market and overseas means China is likely to fall short of this target.
“China will definitely not achieve its 10 per cent goal, given that its foreign trade proceeded slowly in the first half of the year and the prospects are dim for the second half,” said Li Xunlei, deputy CEO and chief economist at Haitong Securities in Shanghai. “And we maintain our prediction that the country’s foreign trade will increase by about 9 per cent year-on-year in 2012.”
Xiang Songzuo, chief economist of the Agricultural Bank of China, was even more bearish, reckoning that China’s foreign trade will increase by less than 7 per cent in 2012.
China’s trade with the EU, its chief trade partner, declined by 1.9 per cent year-on-year in the first eight months of 2012 and its trade with Japan decreased by 14 per cent in the same period, according to the commerce ministry.
The investment banks remain upbeat that China should recover in the fourth quarter, although expectations are fading that
there will be another stimulus plan like the four-trillion yuan (€490 billion) scheme of four years ago.
A better real estate market and decent price/earnings ratios in the stock markets are causes for optimism that China’s economy will reach 7.5 per cent GDP growth in 2012, Gao Ting, managing director of UBS Securities, told the China Daily.