Sunday 26 August 2012

The Sinking Chinese economy

Chinese economy poised to sink below 2008 depths
Proverbial history repeats itself is true depiction of economic status in China. If 2008 nightmare faded from our memory the Chinese theatre is reliving. Remarkably China had demonstrated uncanny resilience in 2008 and 2009 making a blistering recovery propped by timely stimulus package.

25 August, 2012

4 years hence recessionary morass has come back with a vengeance crippling growth and demand bulk of the globe and clouding the gleam of BRICS nations. China had been at the vanguard of global recovery single handedly turning the tide around with its insatiable appetite for goods and services fuelling nearly double digit growth.

Since the past 1 year the sprint has been impeded by deepening economic crisis in EU and USA two important trading partners. Ensuing backlash has left Chinese industry mauled with burdensome inventory and sluggish demand. 

Preponderance of austerity in monetary policy to keep inflation reined has taken toll of growth. Reality sector has been the main drivers of demand and growth in China is in tatters with residual transactions as the credit strapped industry gasps for sustenance. 
Trickle of recent economic indicators reflects the depths economic slowdown even before the year draws to a close. August HSBC Flash China manufacturing purchasing managers index (PMI) fell to 47.8 in August, lowest level since November 2011, from 49.5 in July.

Export orders sub-index at 44.7 - the worst showing since March 2009 - provides bearish reading. Sharp drop in official producer price index in July, which marked the fifth straight month of price deflation showing a sub-index measuring factory input prices at its lowest level since March 2009.

HSBC PMI has been below 50 for 10 straight months, reinforcing calls from investors for measures to support economic growth. Splurge on infrastructure and budget housing propped by reduction in lending rates would be a boon at this juncture.

Government is yet to shed caution on credit indulgence lest it fuels inflation in the final year of change of guard.

Unemployment is another major concern with the HSBC's flash employment sub-index remaining unchanged from June, when it had registered its lowest level since March 2009, the point at which China began to pull out of the trough of the global financial crisis.

Nonetheless government has taken China has been "fine tuning" policies to keep growth on track without releasing curbs on the property sector. Instead, Beijing has fast-tracked fiscal spending on key projects, cut the amount of cash banks must keep as reserves to free an estimated CNY 1.2 trillion for lending by end July. In the last one week alone People's Bank of China (PBOC) injected a net CNY 278 billion in the inter bank money market.

In the twilight of 2012 when the demand recedes owing to slump in economic activity government would go full hog to kindle last burst of economic activity to accomplish yearly targets and glorify the political transition. Turn of events in EU and other economic havens would be pivotal for any endeavor towards economic emancipation .

Other stories about China:

"China's illicit internet economy is growing at such a rate it will inevitably have a hugely adverse impact on the country's entire economy."

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