The Chinese economy

China's slowing deepens gloomy economic outlook

CONCERNS about the global economic outlook have deepened with fresh data showing falling orders for China's small and medium manufacturers

the Australian,

22 June, 2012

As export orders slowed to three-year lows, fears that the slowdown now under way in the world's second-largest economy will be sharper than expected sent mining shares and the Australian dollar lower.

The benchmark S&P/ASX 200 index fell 44.8 points, or 1.08 per cent, to 4087.6, while the dollar was trading at $US1.0161 at 5pm AEST, down from $US1.0194c on Wednesday.

Investors were also disappointed with the outcome of the US Federal Reserve policy meeting overnight.

The news comes on top of the ongoing debt crisis in the eurozone and three months of weak employment data from the US, with China's slowdown already affecting the rest of the developing world.

Following this month's interest rate cut, Chinese policy-makers are expected to take further monetary easing measures on top of stimulus measures already introduced.

"There should be another cut in interest rates and in the bank reserve ratio in July," China Everbright Bank senior economist Sheng Hongqing said. "The export situation is very difficult."

The HSBC flash purchasing managers index fell to its lowest level in seven months, edging back to 48.1 from 48.4 last month.

Any value below 50 represents a contraction in activity.

"China's manufacturing sector continued to slow in June, though the pace of slowdown seems to be slowing. With external headwinds remaining strong, exports are likely to decelerate in the coming months," HSBC economist Hu Qingbin said in a statement.

"The sharp fall of prices and moderation of new orders suggest weak domestic demand, posing de-stocking pressures for Chinese manufacturers. All this is likely to weigh on the jobs market. As such, we expect more decisive policy stimulus to reverse the growth slowdown."

The latest figures come from an economy that has been deliberately slowed down by the government, mainly via restrictions on property buying that have cooled demand and prices in the market that contributed several percentage points to the country's growth.

But the continuing crisis in Europe has seen exports to China's biggest market slump, which is something of double whammy to its economy.

China's GDP growth fell to 8.1 per cent in the first quarter of the year. It was the country's slowest growth in almost three years and the figures for this quarter are forecast to be similar or worse.

Besides, jobs in low-margin manufacturing in China are beginning to move to countries such as Bangladesh and Vietnam as wages and other input costs rise.

The consensus view among economists is that China will see growth of 8 per cent this year -- Credit Suisse expects 7.7 per cent -- compared with 9.2 per cent last year.

The HSBC index gauges activity in the small to medium manufacturing sector, which is more export-focused compared with the official government PBNI index due out on the first day of each month and which measures manufacturing activity at larger, mainly state-owned, firms.

The official PMI fell more than expected last month to 50.4 from 53.4 in April because of weaker than expected economic data for April. This encouraged China's policymakers to cut interest rates by 0.25 per cent this month -- the first cut since 2008 amid other forms of monetary easing as a stimulus measure.

While there was some improvement in May data, particularly in China's trade figures, economists remain divided as to how quickly China can recover.