Sat, Jan 21, 2012 - Page 11 News List

China’s economy starting year in weaker position

SHRINKING:UBS says GDP growth could slow to less than 8 percent in the first quarter as export demand weakens and property construction slows down


China’s manufacturing activity shrank for the third straight month this month, data showed yesterday, leading analysts to warn of a further slowdown for the world’s No. 2 economy.

HSBC’s preliminary purchasing managers’ index (PMI) stood at 48.8 this month, up only marginally from 48.7 last month, the British banking giant said.

A reading above 50 indicates expansion, while a reading below 50 suggests a contraction.

The news come days after the government released data showing the economy grew 9.2 percent last year, well down from the 10.4 percent growth in 2010, while most forecasts put this year’s expansion at between just 8 percent and 8.5 percent.

However, some analysts believe it could slow even more in the first quarter, with growth even dipping below the 8 percent level considered necessary to maintain jobs and contain social unrest.

“The third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further,” Qu Hongbin (屈宏斌), HSBC chief economist for China, said in a statement.

The country’s manufacturing activity contracted in November for the first time in 33 months, according to separate figures previously released by the China Federation of Logistics and Purchasing.

“The ongoing slowdown of investment and exports implies more headwinds to growth,” Qu said.

China’s economy grew 8.9 percent year-on-year in the fourth quarter, the government said this week, slowing from 9.1 percent in the third quarter, due to weaker exports amid turbulence in Europe and the US.

The country’s exports rose 20.3 percent for all of last year, slowing dramatically from growth of 31.3 percent in 2010, to US$1.899 trillion.

Urban fixed asset investment — a measure of government spending on infrastructure — rose at a slightly slower pace of 23.8 percent last year, figures released this week showed.

Swiss investment bank UBS forecast China’s GDP growth could slow to less than 8 percent in the first quarter.

“We expect exports to weaken substantially and property construction to decelerate further in the next few months, dragging down GDP growth,” Hong Kong-based UBS economist Wang Tao (王濤) said in a report on Thursday.

China’s property market is slowing after the government took aim at speculation over the last year by banning purchases of second homes, hiking minimum down-payments and introducing property taxes in select cities.

Home prices in nearly three-quarters of China’s major cities — 52 out of 70 tracked by the government — fell last month from November, the government said earlier this week.

The key to maintaining growth will be credit easing combined with efforts to spur domestic consumption as exports slow, analysts said.

In a bid to boost growth and counter turmoil in the key export markets of Europe and the US, China last month cut the amount of money banks must hold in reserve for the first time in three years.

“We expect more policy easing to stabilize growth,” Qu said.

The government is also keen to have domestic consumption play a greater role in powering the economy, allowing consumers to buy up the goods produced by the nation’s millions of factories.

“However, demand — especially domestic demand —- is not strong enough to reduce inventories and it is still affected by the overall economic environment,” said Zhang Xinfa (張新法), an analyst at Galaxy Securities in Beijing.

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