Bloomberg News

China’s Export Orders Show Threat to Growth From Europe: Economy

January 02, 2012

Jan. 2 (Bloomberg) -- A Chinese manufacturing gauge rose in December, suggesting that a slowdown in the world’s second- biggest economy may be stabilizing even as Europe’s debt crisis dims the outlook for exports.

The purchasing managers’ index was at 50.3 from 49 in November, the Beijing-based logistics federation said in a statement yesterday. The reading exceeded all forecasts in a Bloomberg News survey of 15 analysts where the median estimate was 49.1.

Two reports yesterday highlighted the toll that faltering global growth may take on Asia. In the Chinese data, an index of export orders indicated a third month of contraction, while South Korea forecast that its own overseas shipments will grow in 2012 at only about a third of last year’s pace.

“Europe’s debt woes, the austerity measures the European countries are taking and the sluggish U.S. recovery mean demand for Asian goods this year is likely to be weak, posing a downside risk,” said Yao Wei, a Hong Kong-based economist for Societe Generale SA.

The “festival effects” of western and Chinese New Year celebrations helped to boost the PMI reading, said the logistics federation, which releases the data with the statistics bureau. China has also unwound some tightening measures to spur growth, cutting banks’ reserve requirements in November for the first time since 2008.

‘Starting to Stabilize’

A separate index released by HSBC Holdings Plc and Markit Economics on Dec. 30 indicated that manufacturing contracted for a second month. At the same time, a gain in that gauge led HSBC to say that “the pace of China’s slowdown is starting to stabilize.” The studies have different sample sizes and methodologies.

Yao said that seasonal demand ahead of the weeklong Lunar New Year holiday that begins Jan. 23 may largely have accounted for yesterday’s better-than-expected reading, “reminding us again not to underestimate the consumption power of Chinese households.”

Across Asia, Indonesia reported today that inflation slowed for a fourth straight month in December, while an Indian manufacturing index rose. Purchasing managers’ indexes from the euro region, Germany, France, Italy and Spain will give the latest readings of the strength of manufacturing in Europe.

The MSCI Asia Pacific excluding Japan Index slipped 0.4 percent as of 12:16 p.m. in Singapore on global growth concerns.

‘Contingency Plans’

In South Korea, Samsung Electronics Co. and Hyundai Motor Co., the nation’s largest companies, told employees to brace for intense competition in a weak global economy as the government called for contingency planning.

“South Korea’s economy is facing increased uncertainties this year, and the global economy may rapidly deteriorate if the European debt crisis worsens,” Finance Minister Bahk Jae Wan said in a New Year statement released today. “Contingency plans to prevent contagion from Europe’s crisis should be strengthened.”

President Lee Myung Bak said today he would focus in the coming year on reducing inflation and bringing down unemployment by investing more than 10 trillion won ($8.6 billion) in creating jobs. The government’s goal is to get inflation down to the low 3-percent range, he said. Consumer prices rose 4.2 percent in December.

The nation’s exports may gain 6.7 percent this year, down from 19.6 percent in 2011, the government said yesterday. In December, the increase was 12.5 percent, a report showed.

Export Orders

“The momentum for global growth is weakening,” South Korea’s Ministry of Knowledge Economy said in a statement. “Export and import growth will slow down on increased uncertainty in the global economy.”

In the Chinese PMI data, an index of export orders was at 48.6 from 45.6 in November, still below 50, the dividing line between contraction and expansion. A measure of output jumped to 53.4 from 50.9.

President Hu Jintao said Dec. 31 in his New Year address that China aims for steady and “relatively fast” growth in 2012 amid an increasingly unstable global recovery. Besides pressure on exports, a crackdown on property speculation may limit the expansion by damping construction and officials are also grappling with banks’ bad-loan risks.

The rebound in the PMI “does not signal that the economy has turned around,” said Zhang Zhiwei, a Hong Kong-based economist at Nomura Holdings Inc. who previously worked for the International Monetary Fund. “Growth momentum will continue to wane this quarter, as the European crisis will hurt China’s exports and a cooling property market will drag down domestic demand.”

Cutting Reserve Requirements

Standard Chartered Bank said yesterday that the central bank may cut lenders’ reserve requirements before financial markets reopen on Jan. 4. Besides spurring growth, policy makers may want to ensure that there is enough cash in the system ahead of the holiday.

The Shanghai Composite Index tumbled 22 percent last year, the most since 2008, on concern that monetary tightening and efforts to rein in property prices in big cities will limit growth. The index’s 33 percent drop since 2009 makes it the worst performer among the world’s 15 biggest markets.

Over the year, shares of Jiangxi Copper Co., China’s biggest producer of the metal, slid 51 percent.

Bank of America Merrill Lynch estimates that the Chinese economy grew 8.7 percent in the three months through December from a year earlier, the slowest pace since the second quarter of 2009.

‘Weak’ Momentum

In yesterday’s statement, the logistics federation said the economy’s slowdown is stabilizing even as growth momentum remains “relatively weak.”

December’s rebound in the manufacturing index shows that China “won’t see a big slowdown in 2012,” Zhang Liqun, a senior researcher at the Development Research Center of the State Council, said in the statement. In November, the gauge had pointed to the first contraction in manufacturing since February 2009.

Nomura estimates that China’s economy, the biggest contributor to global growth, will expand 7.9 percent in 2012, the least in 13 years. Inflation is moderating after reaching a three-year high of 6.5 percent in July.

“The urgency of containing inflation isn’t as high as that in the beginning of 2011,” Zhou Xiaochuan, the governor of the central bank, was cited as saying in an interview published by Caixin Century magazine on its website on Dec. 31.

The logistics federation’s manufacturing index is based on a survey of purchasing managers in more than 820 companies in 20 industries. The HSBC PMI covers about 430 businesses.

--Zheng Lifei, Victoria Ruan, with assistance from Shinhye Kang and Eunkyung Seo in Seoul. Editors: Paul Panckhurst, Dick Schumacher

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net; Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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