China too grinds down — faster

HONG KONG: China’s economy, long the envy of the world for its breathless pace of growth, is now completely out of breath.

The country’s manufacturing sector slowed down at the fastest pace on record, and export orders fell sharply, in tandem with the deepening recession in its US and European markets, according to data released on Monday.

China’s PMI, a measure of the state of health of the manufacturing economy, dropped to 38.8 in November, down from 44.6 in October, according to data compiled by the National Bureau of Statistics, the official statistical agency.

An index figure above 50 indicates that business is expanding; a drop below 50 is a worrying symptom of economic deterioration.

“The Chinese economy is slowing down at an accelerating rate,” confirms Zhang Liqun, an economic researcher at the Chinese Development Research Centre in Beijing.
“The signs of economic contraction are more evident.”

A second PMI, compiled by the brokerage firm CLSA, too registered a sharp fall, from 45.2 to 40.9, the lowest on record.

It’s the fourth successive month that operating conditions within the Chinese manufacturing sector have worsened, and the first in which the weakness in overseas demand overtook what has, until now, been mainly a domestic slowdown.

UBS economist Wang Tao attributes the sharp fall in the PMIs mainly to “falling orders and production cuts”. The weak data “reflect the sharp fall in construction-related activity and demand for related products, as well as the coming weakness in export demand.”

Wang too reckons that more grim times lie ahead. “We expect more bad news in headline numbers such as industrial production, power consumption, and transportation in the coming months.” But, she adds, China’s recently announced $585 billion economic stimulus plan and some monetary easing should help stabilise the economy in the second quarter of 2009.

If the headline PMI numbers are grim, the data breakdown reveals a more gruesome picture, observes Moody’s Economy.com economist Sherman Chan. The data reveal an across-the-border fall in export orders, output and new orders, with new export orders tumbling from 41.4 to 29. “This is a major concern to China’s economy, which has long counted on exports to fuel GDP growth,” says Chan.

China’s economy, she reckons, will slow more dramatically than earlier predicted: in her opinion, GDP growth for the quarter to December quarter could decelerate to below the psychologically important 8%.  Any further stimulus package is welcome, says Chan, “but they will unlikely provide an immediate boost to the economy because of the lag in rolling out public policies.” The economic slowdown in China will not be arrested until at least mid-2009, she says.