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Wednesday 17 December 2008
Economists: China’s Economy Has Bottomed
A flood of data in November shows a deeper sliding Chinese economy but the flipside of the bad news is that China may strike bottom in late-2009 and the path from there will lead upwards.
A flood of data in November shows a deeper sliding Chinese economy but the flipside of the bad news is that China may strike bottom in late-2009 and the path from there will lead upwards.
According to National Bureau of Statistics figures released yesterday, value-added of industrial enterprises above designated size (i.e. all state-owned enterprises and those non-state-owned enterprises with an annual sales income over 5 million yuan) grew 5.4% year on year, the lowest point since 1998 and 11.9 percentage points lower than the year-on-year growth in November 2007.
Economists believe the rapid decline in value-added growth may be caused by declining internal and external demand and that companies need time to relieve inventory. Some think the November statistics show the Chinese economy may have bottomed under the influence of the global financial crisis, and that the fourth quarter of this year and first two quarters of next year may see the lowest economic growth, with a rebound for the economy from the third quarter of 2009.
Diving External Demand Hurts
In the second half of the year, especially the past two months, industrial value-added growth has seen continuous and accelerated decline. Year-on-year valued-added growth of industrial enterprises above designated scale was 14.7% in July and 11.4% in September. This figure has fallen to one-digit since October.
The influence of the financial crisis has spread from light to heavy industry. Value-added of chemical fertilizer and chemical product manufacturing dropped by 3.3% over the same period last year, that of telecoms facility, computer and other electronic equipment manufacturing by 0.2% year on year. Value-added of transportation equipment manufacturing grew by 3.6% year on year.
Chen Xingdong, Chief Economist at BNP Paribas Peregrine Securities, said November figures showed he had underestimated the influence of the financial crisis on China.
Wang Tao, Chief Chinese Economist at UBS, believes the deep decline in industrial growth indicates current economic activities are weakening. The decline before November was mainly led by internal demand, but the influence of quickly worsening external environment began to emerge in November.
In November, China’s exports, measured in USD, showed a negative increase, -2.2% year on year, dropping by 21.4 percentage points compared with the 19.2% growth in October, and 25 percentage points lower than the year-on-year growth in November, 2007. This is the first negative growth since February, 2002.
Another sliding figure in November was due to the continuing slowdown in real estate construction, which has led to a decline in the steel and power industries which are closely related to real estate development.
Nationwide power generation totalled 254.02 billion kwh in November, 9.6% down over the same month last year. Production of pig iron, crude steel, and steel products totaled 335.16 million tons, 351.89 million tons, and 423.01 million tons, respectively, dropping by 16.2%, 12.4%, and 11% from November last year.
As for internal demand, the vacancy ratio of commercial housing rose by 2.2 percentage points over October, while auto production dropped by 2.2% over the previous month. Growth of auto consumption decreased from 19.6% in October to 7.7% in November. Year-on-year building and decoration material consumption dropped further from –14.8% in October to -32.6% in November.
Meanwhile, due to the drastic increase in international commodity prices earlier in the year for many raw materials, many chemical companies bought large amounts and need time to digest all these materials in stock since market demand is sliding.
Statistics show the sales ratio of products of industrial enterprises was 97% in November, 0.95% down over the same month last year. The value of exported goods of industrial enterprises totalled 644.85 billion yuan, 5.2% down year on year.
Earlier Liu He, deputy director of the Office of the Central Financial and Economic Leading Group, said China’s real economy was adjusting and digesting goods in stock, and that it is normal and not surprising at all that indicators would decline during this period.
Rebound in Q3, 2009?
Chen Xingdong told China Business News that since 2008 is a time of economic downturn, the economy will slide more quickly when the bottom is getting closer. Chen Xingdong believes the fourth quarter of 2008 and the first two quarters of 2009 will mark the bottom of this round’s economy. After the second quarter of next year, industrial value-added and economic growth will rebound slowly.
Liu He predicts that after companies digest present stock, they will restore normal production and return to stable growth in the first quarter of 2009. So-called “normal production” doesn’t mean replicating the past. Instead, it refers to new way of selling goods and the emergence of new products.
Wang Tao also believes the first quarter of 2009 may be the bottom of this round’s economic downturn, and that the Chinese economy will see a rebound from the third quarter of next year. He said exports would still see negative growth in the following several months.
China has launched intensive economic stimulation policies since November. According to Chen Xingdong, there are enough investment projects in China. China maintaining 8% growth next year depends on three aspects: whether the central government can fully arouse the enthusiasm of local governments; whether China will raise the funds needed by issuing a large amount of national debt; and whether banks will be willing to grant loans.
Due to the economic slide, this last may be difficult. Recently the State Council required that governments should “encourage commercial banks to grant loans to projects with investment from the central government, and increase loans of financial institutions in 2008 by 4 trillion yuan.”
What is worth attention is that newly granted loans in November have reached an historical high. RMB loans in the month increased by 476.9 billion yuan year on year, and this number is 389.5 billion yuan higher than the year-on-year growth in November 2007. Wang Tao thinks this may be led by loosened monetary policy launched earlier, but it is still too early to judge whether this trend will develop into long-term and continuous credit growth.
1 comment:
Economists: China’s Economy Has Bottomed
CSC staff, Shanghai
16 December 2008
A flood of data in November shows a deeper sliding Chinese economy but the flipside of the bad news is that China may strike bottom in late-2009 and the path from there will lead upwards.
According to National Bureau of Statistics figures released yesterday, value-added of industrial enterprises above designated size (i.e. all state-owned enterprises and those non-state-owned enterprises with an annual sales income over 5 million yuan) grew 5.4% year on year, the lowest point since 1998 and 11.9 percentage points lower than the year-on-year growth in November 2007.
Economists believe the rapid decline in value-added growth may be caused by declining internal and external demand and that companies need time to relieve inventory. Some think the November statistics show the Chinese economy may have bottomed under the influence of the global financial crisis, and that the fourth quarter of this year and first two quarters of next year may see the lowest economic growth, with a rebound for the economy from the third quarter of 2009.
Diving External Demand Hurts
In the second half of the year, especially the past two months, industrial value-added growth has seen continuous and accelerated decline. Year-on-year valued-added growth of industrial enterprises above designated scale was 14.7% in July and 11.4% in September. This figure has fallen to one-digit since October.
The influence of the financial crisis has spread from light to heavy industry. Value-added of chemical fertilizer and chemical product manufacturing dropped by 3.3% over the same period last year, that of telecoms facility, computer and other electronic equipment manufacturing by 0.2% year on year. Value-added of transportation equipment manufacturing grew by 3.6% year on year.
Chen Xingdong, Chief Economist at BNP Paribas Peregrine Securities, said November figures showed he had underestimated the influence of the financial crisis on China.
Wang Tao, Chief Chinese Economist at UBS, believes the deep decline in industrial growth indicates current economic activities are weakening. The decline before November was mainly led by internal demand, but the influence of quickly worsening external environment began to emerge in November.
In November, China’s exports, measured in USD, showed a negative increase, -2.2% year on year, dropping by 21.4 percentage points compared with the 19.2% growth in October, and 25 percentage points lower than the year-on-year growth in November, 2007. This is the first negative growth since February, 2002.
Another sliding figure in November was due to the continuing slowdown in real estate construction, which has led to a decline in the steel and power industries which are closely related to real estate development.
Nationwide power generation totalled 254.02 billion kwh in November, 9.6% down over the same month last year. Production of pig iron, crude steel, and steel products totaled 335.16 million tons, 351.89 million tons, and 423.01 million tons, respectively, dropping by 16.2%, 12.4%, and 11% from November last year.
As for internal demand, the vacancy ratio of commercial housing rose by 2.2 percentage points over October, while auto production dropped by 2.2% over the previous month. Growth of auto consumption decreased from 19.6% in October to 7.7% in November. Year-on-year building and decoration material consumption dropped further from –14.8% in October to -32.6% in November.
Meanwhile, due to the drastic increase in international commodity prices earlier in the year for many raw materials, many chemical companies bought large amounts and need time to digest all these materials in stock since market demand is sliding.
Statistics show the sales ratio of products of industrial enterprises was 97% in November, 0.95% down over the same month last year. The value of exported goods of industrial enterprises totalled 644.85 billion yuan, 5.2% down year on year.
Earlier Liu He, deputy director of the Office of the Central Financial and Economic Leading Group, said China’s real economy was adjusting and digesting goods in stock, and that it is normal and not surprising at all that indicators would decline during this period.
Rebound in Q3, 2009?
Chen Xingdong told China Business News that since 2008 is a time of economic downturn, the economy will slide more quickly when the bottom is getting closer. Chen Xingdong believes the fourth quarter of 2008 and the first two quarters of 2009 will mark the bottom of this round’s economy. After the second quarter of next year, industrial value-added and economic growth will rebound slowly.
Liu He predicts that after companies digest present stock, they will restore normal production and return to stable growth in the first quarter of 2009. So-called “normal production” doesn’t mean replicating the past. Instead, it refers to new way of selling goods and the emergence of new products.
Wang Tao also believes the first quarter of 2009 may be the bottom of this round’s economic downturn, and that the Chinese economy will see a rebound from the third quarter of next year. He said exports would still see negative growth in the following several months.
China has launched intensive economic stimulation policies since November. According to Chen Xingdong, there are enough investment projects in China. China maintaining 8% growth next year depends on three aspects: whether the central government can fully arouse the enthusiasm of local governments; whether China will raise the funds needed by issuing a large amount of national debt; and whether banks will be willing to grant loans.
Due to the economic slide, this last may be difficult. Recently the State Council required that governments should “encourage commercial banks to grant loans to projects with investment from the central government, and increase loans of financial institutions in 2008 by 4 trillion yuan.”
What is worth attention is that newly granted loans in November have reached an historical high. RMB loans in the month increased by 476.9 billion yuan year on year, and this number is 389.5 billion yuan higher than the year-on-year growth in November 2007. Wang Tao thinks this may be led by loosened monetary policy launched earlier, but it is still too early to judge whether this trend will develop into long-term and continuous credit growth.
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