The latest CLSA China Manufacturers Purchasing Managers Index (PMI), showed the steepest fall in volumes of new orders since the monthly survey began in June 2004; registering 47.7, it was well below the 50 points threshold. Some are saying that this points to the effect of th U.S. economic downturn reaching China's shores. Frederik Balfour writing in Businessweek reckons that what's worrying about the PMI is that it declined for the third month in a row, suggesting a trend of falling demand from both domestic and export orders. 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 GDP.
China's GDP growth is expected to slow to 7.9% next year, down from a forecast 9.5% this year, and 11.4% in 2007.
Guangdong under pressure?
Coastal areas that rely more heavily on exports have been hardest hit. Nowhere is this more apparent than in Guangdong, which for years was the head of China's economic dragon. Thousands of factories have been shuttered as companies move to lower-cost areas inland and elsewhere in Southeast Asia, and the region could become China's next rust belt if things continue.
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Auto industry
Some Western observers note that it's not just makers of toys and televisions that are at risk. Even China's booming auto industry is showing serious signs of decline.
Property market
The property market also looks poised for a downward spiral. Prices in Guangdong cities have fallen between 30% and 35% since the beginning of the year, even as cash-strapped property developers cut prices on new developments to move inventories. China Vanke, the country's largest property developer, slashed prices by 15% at two of its Shanghai projects at the beginning of September. Meanwhile, the property arm of Morgan Stanley is looking to unload the two luxury residential developments in Shanghai it bought in recent years, a sign the market has hit its peak.
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But with property accounting for more than 10% of GDP, the government isn't going to sit idly by as values plummet. On Sept. 15, China cut interest rates by 0.27%, to 7.20%, for one-year loans, the first cut in six years and a clear sign Chinese leaders are now more worried about bolstering demand than the risk of stoking inflation.
Infrastructure spending
These trends may be offset to some extent by infrastructure spending. Government coffers are bulging—reserves are $1.8 trillion, public debt is tiny, and the country is running a budget surplus. JPMorgan predicts China could easily spend 1% to 2% of GDP on infrastructure alone to build more railroads and subways.
The rest of Asia?
There is no doubt that China's economy will be affected by the problems of its biggest customer, the U.S. By extension, any reduction in China's economic activity will have a direct impact on countries like Malaysia that supplies commodities such as palm oil to China. Falling CPO prices are a good indicator.
Guangdong under pressure?
Coastal areas that rely more heavily on exports have been hardest hit. Nowhere is this more apparent than in Guangdong, which for years was the head of China's economic dragon. Thousands of factories have been shuttered as companies move to lower-cost areas inland and elsewhere in Southeast Asia, and the region could become China's next rust belt if things continue.
.
.Auto industry
Some Western observers note that it's not just makers of toys and televisions that are at risk. Even China's booming auto industry is showing serious signs of decline.
Property market
The property market also looks poised for a downward spiral. Prices in Guangdong cities have fallen between 30% and 35% since the beginning of the year, even as cash-strapped property developers cut prices on new developments to move inventories. China Vanke, the country's largest property developer, slashed prices by 15% at two of its Shanghai projects at the beginning of September. Meanwhile, the property arm of Morgan Stanley is looking to unload the two luxury residential developments in Shanghai it bought in recent years, a sign the market has hit its peak.
.
.But with property accounting for more than 10% of GDP, the government isn't going to sit idly by as values plummet. On Sept. 15, China cut interest rates by 0.27%, to 7.20%, for one-year loans, the first cut in six years and a clear sign Chinese leaders are now more worried about bolstering demand than the risk of stoking inflation.
Infrastructure spending
These trends may be offset to some extent by infrastructure spending. Government coffers are bulging—reserves are $1.8 trillion, public debt is tiny, and the country is running a budget surplus. JPMorgan predicts China could easily spend 1% to 2% of GDP on infrastructure alone to build more railroads and subways.
The rest of Asia?
There is no doubt that China's economy will be affected by the problems of its biggest customer, the U.S. By extension, any reduction in China's economic activity will have a direct impact on countries like Malaysia that supplies commodities such as palm oil to China. Falling CPO prices are a good indicator.
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