Jul 25, 2013

    Trade partners shiver from China chill

    CHINA'S manufacturing engine lost further momentum this month and the job market weakened, a survey showed yesterday, complicating a transition to consumer-driven growth and boding ill for so many that are leveraged to the world's second-largest economy.

    The knock-on effects are already being felt more and more widely - from a slowdown in Japanese export growth despite a weaker yen, to Apple lamenting a rare drop in Chinese demand for its gadgets.

    "China's slowdown is starting to become more dangerous,"warned Dr Yasuo Yamamoto, a senior economist at Mizuho Research Institute in Tokyo.

    The flash HSBC/Markit Purchasing Managers' Index yesterday showed output, employment and new orders all declining at a faster pace this month.

    The overall index of business conditions fell to 47.7 from last month's final reading of 48.2, a third straight month below the watershed 50 line, which divides expansion from contraction, and the weakest level since August last year.

    The employment sub-index slid to 47.3, the weakest since the depths of the global financial crisis in early 2009.

    The slowdown could reignite fears of a Chinese hard landing, said Ms Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.

    "We expect economic growth to continue moderating towards 7 per cent."

    China's economy grew 7.5 per cent in April-June from a year earlier, the ninth quarter of slowdown in the past 10 quarters.

    While top leaders have stressed in recent weeks that reform is the priority, the latest being President Xi Jinping, they were also at pains to assure investors that Beijing would not allow the economy to slip too far.

    Yesterday, the industry ministry said it was putting a priority on restructuring and reforming traditional industries such as steel, shipbuilding, cement and aluminium - once drivers of growth but now plagued by over-capacity.

    Some analysts note that China is also hostage to the health of global markets.

    "China cannot change its weak economic-growth situation due to still-weak external demand and over-capacity problems in the domestic market," said Mr Wang Jian, a senior researcher with the China Society of Macroeconomics, a research body affiliated with the National Development and Reform Commission.

    "China's economic growth rate will probably fall below 7 per cent in the fourth quarter this year and may fall under 6 per cent in some quarter next year," he wrote in the China Securities Journal yesterday.

    While that is at the extreme end of market forecasts, China has become such a major importer of goods that any weakness in demand is felt worldwide increasingly.

    Japan yesterday reported that annual growth in its exports to China eased to 4.8 per cent last month from 8.3 per cent in May.

    In the United States, Apple reported that quarterly revenues from Greater China dived 43 per cent from the previous quarter, down 14 per cent from the same time last year.