Factory Slump Puts China on Verge of 'Recession'

[GoFlyKiteNow]

Factory Slump Puts China on Verge of 'Recession'
Business Week

October's sharp contraction in manufacturing heralds a widespread slowdown in the Chinese economy
http://www.businessweek.com/globalbiz/content/nov2008/gb2008113_275559.htm?chan=rss_topStories_ssi_5

By Frederik Balfour

Anyone who was looking for China somehow miraculously to save the world economy is going to be terribly discouraged by the latest signs of a economic slowdown in the Middle Kingdom.

The CLSA China Manufacturers Purchasing Managers Index (PMI) showed that factory activity contracted sharply during October, with the index falling to its lowest level since the surveys began in June 2004.

Based on monthly questionnaires sent to 400 Chinese manufacturers asked to give month-on-month comparisons, the survey is widely considered one of the most robust leading indicators in China, where economic data are often suspect. The PMI is also important because manufacturing accounts for about 42% of China's gross domestic product. A rating of 50 is the cutoff for expansion/contraction.

In October it registered 45.2, down from 47.7 in September. "Chinese manufacturers are seeing their order books cut, both at home and abroad, as the world economy falls into recession," Eric Fishwick, head of economic research at Hong Kong-based CLSA said with the release of the report. "The coming 12 months will be difficult for manufacturers, China included."

The growing signs of slowdown (BusinessWeek.com, 10/29/08) are manifold. In Guangdong province, traditionally the center of China's light industry, nearly half the toy manufacturers have gone out of business. Some have moved to cheaper locations inland, but others have disappeared altogether, often leaving workers with several weeks of unpaid wages.

On Oct. 16, Hong Kong-owned Smart Union Toy left 6,000 workers in the southern city of Dongguan in the lurch after it closed without warning. The government may now have to compensate workers from Smart Union, which produced toys for Mattel (MAT) and Walt Disney (DIS), for unpaid wages.

Pump-Priming Needed

The deterioration in China's economic outlook has been relatively recent. In mid-summer, only pessimists expected China's GDP growth to slow next year to 8%, a level necessary to ensure the absorption of new labor entrants into the work force. Anything below this could by Chinese economic standards be considered a recession. Now economists are following one another with economic downgrades.

On Oct. 31, UBS issued a new growth forecast for next year of 7.5% (down from 8%), warning things could be even worse if the government does not come up with a speedy and effective program of monetary loosening and pump-priming.

Any effective program will also need to address China's property problems. Real estate accounts for 25% of all fixed investment in China, and Credit Suisse (CS) economist Dong Tao says China's single biggest challenge is to save the property market from spiraling into a (vicious downward circle. Beijing introduced countrywide measures to boost the housing market by cutting required downpayments from 30% to 20% and reducing fees related to home purchase. The government has also cut interest rates three times in two months and lifted loan quotas on banks.

These measures, however, are insufficient to lure buyers back into the market. Indeed, China is just entering the down cycle of its property market after years of heady growth and inflated prices.

Transaction volume has slowed to a trickle, putting the squeeze on thousands of developers who are desperate for cash.

This, in turn, makes banks highly vulnerable to defaults. "If there is continued stagnation, there will be all kinds of complications for consumer confidence," Dong Tao said last week.

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong.

 

[singveld]

die chinaman die.
yes, i welcome china collapse, throught the ashes, come a better china.

 

[Goh Meng Seng]

Are you using an old piece of news written 1 year ago to predict the future?

Goh Meng Seng

 

[longbow]

Haha GMS you are right! Article is 1 year old pre-crisis.

Well fast forward 1 year and we can see how wrong the article is. Not only is China not in a recession (8.5% GDP growth) they are now concerned about too much growth. And yes they are the locomotive that pulled Australia, S Korea and regional economies out of a recession.

Are you using an old piece of news written 1 year ago to predict the future?

Goh Meng Seng

 

[flyingsword]

when will this happen to Singapore?

 

[Goh Meng Seng]

Haha GMS you are right! Article is 1 year old pre-crisis.

Well fast forward 1 year and we can see how wrong the article is. Not only is China not in a recession (8.5% GDP growth) they are now concerned about too much growth. And yes they are the locomotive that pulled Australia, S Korea and regional economies out of a recession.

Well, if we want to be credible, we need to be more discerning and careful in making use of information to support our views or analysis. I feel that this has to be applied to both opposition members and supporters as well.

We should be moving towards the direction of extracting accountability from the ruling party instead of just pure ranting of anti-PAP sentiments. In order to do that, we need to persuade other middle ground voters about the ills and fallacies of PAP's policies.

Although this article here is not about Singapore but China, but sometimes it worries me that such practice is brought over to attacking PAP.

Goh Meng Seng

 

[TeeKee]

Factory Slump Puts China on Verge of 'Recession'
Business Week

Manufacturing November 3, 2008???

You want me to ask you to stop posting and go fly kite now?

 

[longbow]

I agree with your point. I am not into politics but I believe in what they call the "sunshine" rule over in the US. Put everything in the open, discuss it, use info that is credible (as much as possible), include links if possible.

For this thread, the initial poster must have been trying hard online to search for an article that would show that China is about to double dip. In his attempt to find such an article he dredged out an old article without knowing it is over 1 year old. of course it is hard to find info on China going for double dip recession, because the concerns are more about economy getting too hot, ramping up above 10%.

As I said I am not into politics - when a policy is bad it is bad. For example, much has been said about paying ministers market rate and I think ok, I understand that point of view - so that we can get the best talent as well as reduce corruption (and I am thankful that Singapore has little corruption). But on the other side of the coin since we are paying so much then make politicians declare their networth - sunshine.

Well, if we want to be credible, we need to be more discerning and careful in making use of information to support our views or analysis. I feel that this has to be applied to both opposition members and supporters as well.

We should be moving towards the direction of extracting accountability from the ruling party instead of just pure ranting of anti-PAP sentiments. In order to do that, we need to persuade other middle ground voters about the ills and fallacies of PAP's policies.

Although this article here is not about Singapore but China, but sometimes it worries me that such practice is brought over to attacking PAP.

Goh Meng Seng

 

[GoFlyKiteNow]

Manufacturing November 3, 2008???

You want me to ask you to stop posting and go fly kite now?

3 Arguments for China’s Looming Economic Crash
By Rocky Vega

http://dailyreckoning.com/3-arguments-for-chinas-looming-economic-crash/

11/10/09 Stockholm, Sweden

Billionaire hedge fund investor Jim Chanos, the famous Enron short seller, is in the camp of professionals who view China as headed toward a crash.

The China bears suspect that the economy is not as healthy as portrayed, and that many of its components that are actually stronger have become overheated. Basically, they believe that the “entire system is teetering toward collapse.”

Here are three factors that suggest serious problems in China…

* First, they claim the huge $900 billion spent by the government on economic stimulus to support the $4.3 trillion economy is underperforming.

* Second, China could be cooking its books. There are notable inconsistencies in official statistics. They highlight that car sales are rising dramatically but gasoline consumption is flat, one of many unexplained economic phenomena.

* Third, the Chinese potentially face problems with overcapacity. For example, China uses more cement than the rest of the entire world combined, and it increased production by an amount greater than US, India, and Japan’s combined consumption.

It’s one example, but the concern is that China will not be able to find a market for many of the goods it is producing in massive amounts.

A collapse of the Chinese economy would send shockwaves worldwide, certainly to include the US. A crippled China could find itself with a destabilized government and would be less able to support purchases of US debt… both are serious concerns. To read more of the full story visit Politico, and view its coverage of China headed toward collapse.
.
http://www.politico.com/news/stories/1109/29330.html
.

 

[peterlth]

You believe all the BS that those economists and fund managers say?

There are thousands of so call guru making comments about china economy. Each has their own agenda, some wants to be famous by writing 'insightful' articles, some wants the market to soar in order to cash out their shares, others wants the market to fail so that their gold investment will gain value, etc.

For every 10 articles that say China's economy should have collapsed yesterday, you can find another 10 that says China will prosper in the next 10 years.

3 Arguments for China’s Looming Economic Crash
By Rocky Vega

http://dailyreckoning.com/3-arguments-for-chinas-looming-economic-crash/

11/10/09 Stockholm, Sweden

Billionaire hedge fund investor Jim Chanos, the famous Enron short seller, is in the camp of professionals who view China as headed toward a crash.

The China bears suspect that the economy is not as healthy as portrayed, and that many of its components that are actually stronger have become overheated. Basically, they believe that the “entire system is teetering toward collapse.”

Here are three factors that suggest serious problems in China…

* First, they claim the huge $900 billion spent by the government on economic stimulus to support the $4.3 trillion economy is underperforming.

* Second, China could be cooking its books. There are notable inconsistencies in official statistics. They highlight that car sales are rising dramatically but gasoline consumption is flat, one of many unexplained economic phenomena.

* Third, the Chinese potentially face problems with overcapacity. For example, China uses more cement than the rest of the entire world combined, and it increased production by an amount greater than US, India, and Japan’s combined consumption.

It’s one example, but the concern is that China will not be able to find a market for many of the goods it is producing in massive amounts.

A collapse of the Chinese economy would send shockwaves worldwide, certainly to include the US. A crippled China could find itself with a destabilized government and would be less able to support purchases of US debt… both are serious concerns. To read more of the full story visit Politico, and view its coverage of China headed toward collapse.
.
http://www.politico.com/news/stories/1109/29330.html
.

 

[Cestbon]

Deflation is coming.

 

[longbow]

Read a similar type article by Gordon Chang who ended up with egg on his face. Recently article from Chinese central bank is concern about asset bubble and economy revving to double digit growth. No different from the article Goflykite posted initially above talking about doom and gloom for China from a year ago.

In 3rd world nations, especially in situations where the economy is growing at 8% for the last 10 years, statistics often have to catch up with what is happening on the ground. Hence best way to understand what is happening is to look at the trends. 8 years ago i read economist article about China fudging it economic numbers because electricity consumption is down.

But yet over the past 8 years, the Chinese probably doubled or tripled their electricity capacity and are still building more plants. If there was no demand, many of these new powerplants would be idling. If there was no production output then why is china dominating the world market in terms of many everyday products. Why does Obama have to claim China as the one of the 2 superpowers.

Just like this article comparing car sales with fuel consumption. Remember that figures of car pop vs fuel consumption might reflect people buying cars for business - taxi, car being share by 2 to 3 familes in the recent past (remember at 8 percent growth things change very fast). So annual mileage per car is high.

But now we might be seeing people buying that second luxury car. the shiny new buick, mercedes, audi is used for weekend while in the weekdays, they use the old Toyota camry. Also the recent hike in oil prices might have made it better for many to take public transport (remember they do have a pretty decent rail system - none of that hundreds of people hanging from the roof and side of train type of deal). So they may have parked their car at home and take the train..

Finally even if the Chinese were on the verge of a recession, they could and have the $$$ to pump in another $500B before recession happens. After all the Chinese do need to further improve their infra.

 

[Seee3]

Why bothered with what others say. Logic states that the current manufacturing capacity is big enough to feed the crazy demand from the West of the past. That level of demand cannot be resurrected in the short term unless US can pull out another miracle which I have been longing to see.

Therefore, the issue is - over-capacity resulting from the drop in demand. Can the stimulus injected sustain long enough for the capacity to wind down gradually enough to avoid a crash. Is the fund going to the correct place? How long a period is needed? I am worried that it can't. Then what?

 

[Goh Meng Seng]

Linear thinking would give that conclusion but China is very different from places like Singapore, Taiwan or even Korea. The market in China is so enormous that the domestic market could most probably fill the gap of demand left by the West.

Goh Meng Seng

Why bothered with what others say. Logic states that the current manufacturing capacity is big enough to feed the crazy demand from the West of the past. That level of demand cannot be resurrected in the short term unless US can pull out another miracle which I have been longing to see.

Therefore, the issue is - over-capacity resulting from the drop in demand. Can the stimulus injected sustain long enough for the capacity to wind down gradually enough to avoid a crash. Is the fund going to the correct place? How long a period is needed? I am worried that it can't. Then what?

 

[Seee3]

Potential Demand is everywhere, not confined to China, example India and even Africa. If there is a way to channel economic aids to this potential demand in an effective way in which it can then generate economic activities, the world will never go into recession.

However, Stimulus package meant to kick start economic activities are now mainly going into stocks, properties, carry-trade... and worst of all, the pockets of the guys who cause the mess.

Which authority can have the absolute control over the movement of fund? Can China do it? Maybe if the central govt can eradicate corruption at all levels. Is such a scenario possible or will uprising resulting from unhappiness from the peasants set in before it can be done? Will aid percipients become over reliance on govt? Too many if's and too complex a situation to see a rosy future because of 2 basic nature of man resulting from comfort after many good years - laziness and greed.