Bloomberg News

China-Japan Weakness Persists; Korea Exports Fall

October 01, 2012

China-Japan Weakness Persists as Korean Exports Decline

An employee works on the assembly of a bicycle drive train during manufacture process at the Giant Manufacturing Co. Ltd. factory in the Kunshan area of Suzhou, Jiangsu Province, China. Photographer: Nelson Ching/Bloomberg

China’s manufacturing contraction persisted last month, Japanese industrial companies grew more pessimistic and South Korean exports fell, signaling East Asia’s biggest economies have yet to reverse their slowdowns.

A Chinese factory index was at 49.8 for September, the first time that it has been below 50 for two straight months since 2009, a statistics bureau report showed in Beijing today. Japan’s Tankan index of large manufacturers’ confidence fell to minus 3 for the past quarter. South Korean shipments slid for a third month.

In China, measures to support growth may be stepped up after the Communist Party dealt with political issues including laying charges against ousted Politburo member Bo Xilai and setting Nov. 8 for the start of a party congress, Bank of America Corp. said today. Japan’s fiscal response may be complicated by a parliamentary stand-off over financing and an election as early as this year, with Prime Minister Yoshihiko Noda reshuffling his cabinet today to revive support.

“We don’t expect a bounce back soon from the slowdowns in these East Asian economies,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official.

The MSCI Asia Pacific Index dropped 0.7 percent as of 1:02 p.m. in Tokyo. In Japan, the Nikkei 225 Stock Average slipped 1.2 percent. Financial markets in China, Hong Kong and South Korea are closed for holidays.

Global Manufacturing

Manufacturing reports may also today indicate contractions across Europe and in the U.S. amid weakness in global demand.

In America, the Institute for Supply Management Inc.’s factory index was probably little changed at 49.8 in September, from 49.6 in August, according to the median estimate in a Bloomberg News survey of economists. A reading of 50 is the dividing line between expansion and contraction.

Data from the euro region may show unemployment rising and manufacturing contracting. Purchasing managers’ indexes will give readings on factory activity in nations including Italy, France, Germany. India's gauge was unchanged in September, a report showed today.

Today’s Chinese PMI, released by the statistics bureau and the nation’s logistics federation, came after a similar measure from HSBC Holdings Plc (HSBA) and Markit Economics showed an 11th straight contraction. Outgoing Premier Wen Jiabao aims to stop economic growth slipping below his 7.5 percent target for this year, a pace that would already be the weakest since 1990.

Party Congress

The date for the 18th Communist Party Congress and the decision to charge Bo with criminal offences -- after his wife, Gu Kailai, was convicted of murder -- were announced by the state-run Xinhua News Agency on Sept. 28.

Those announcements suggest that the party has agreed on the make-up of the Politburo’s standing committee, and mean the nation’s leaders can now turn their efforts to supporting the economy and countering a deterioration in the labor market, said Lu Ting, a Hong Kong-based economist for Bank of America.

The odds of further cuts in banks’ reserve requirements “could rise significantly if interbank rates do not reverse after the week-long holiday,” Lu said.

The central bank has held off from adding to interest-rate cuts in June and July, partly on concern housing prices will rebound, Chen Yulu, a People’s Bank of China academic adviser, said last week.

In Japan, Koriki Jojima, 65, was named the nation’s fifth finance minister in three years, highlighting the absence of political continuity that is among challenges for the world’s third-biggest economy.

China Dispute

Growth is further threatened by a dispute between Japan and China over islands claimed by both nations in the East China Sea. The crisis is hurting the $340 billion trade relationship between Asia’s two largest economies, causing cancellations of 40,000 seats on All Nippon Airways flights, while Toyota Motor Corp. and Nissan Motor Co. are cutting production in China.

Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc., said the Japanese economy is likely to have contracted in the third quarter and will probably do so again in the fourth, because of weakness in exports. Domestic demand may also wane after the expiry of a subsidy program for purchases of fuel-efficient cars.

The Bank of Japan (8301) meets twice this month to review monetary policy after expanding easing in September.

Weakness in exports is hitting economies across Asia as Europe’s austerity measures cap demand. South Korea’s government reported today that purchases of oil products and electronics including Samsung Electronics Co.’s Galaxy S III smartphone helped prevent a steeper decline in shipments last month. Economists’ median forecast had been for a 5.5 percent decrease.

Recovery Signs

In China, the logistics federation said that a recovery for the nation “is gradually coming into shape,” with the purchasing managers’ index up from 49.2 in the previous month, along with gains in sub-indexes for output, orders and export orders.

“Weak external demand is putting heavy pressure on Chinese manufacturers, especially exporters,” Ren Xianfang, an analyst with IHS Global Insight in Beijing, said before the data. “China’s economic performance may hit bottom in the fourth quarter before it rebounds modestly in the first quarter of next year.”

The index last showed two straight months of contraction in January and February of 2009.

The official manufacturing PMI has a pattern of rising each September. Before the release, Goldman Sachs Group Inc. said that a modest increase in the number was likely because of “seasonality” and China’s growth momentum has yet to show a meaningful recovery.

To contact Bloomberg News staff for this story: Xin Zhou in Beijing at xzhou68@bloomberg.net; Andy Sharp in Tokyo at asharp5@bloomberg.net

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


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