Yuan Watch : Continuing slowdown

January 05,2009
by CSC staff, Shanghai
chinastakes.com

Although the government prop-up package launched in November is beginning to show some effect as it offers industries such as the steel industry big orders in a short period, the situations for the export and non-manufacturing industries are worsening and China’s economic slow down is continuing.

On Sunday, the China Federation of Logistics & Purchasing released December’s Purchasing Manager Index (PMI) of 41.2, still in a recessionary area (below 50) but 2.4 percentage points over November’s, showing the effect of the government’s stimulus.

Among 12 PMI sub-indexes, those for order backlog, finished goods in stock, employment, and supplier’s distribution time all worsened, while others improved.

PMI usually drops slightly between October and January or February as companies suspend production and start settlement at year’s end and the beginning of the next year. But this time it rebounded from 38.8 in November, an historical low.

A manager of a large domestic steel company told China Business News that the company was rapidly recovering from the production suspension in October, and production in December was estimated to be about 36 million tons, higher than November’s 35 million tons and the 31.9 million tons in October, when the situation was at its worst.

For many small and medium-sized enterprises dependent on foreign trade, however, help and revival are still far away.

The index for new export orders rose by a meager 1.7 percentage points, but it is below 50% in most industries. Zhou Xiaonan, general manager of a Guangdong-based company, told China Business News that due to the Spring Festival (Chinese New Year) in January this year, some orders that would be placed in January, 2009, were placed in December, 2008. However, the number of new orders was still lower than in the same month last year. Zhou estimated the situation for the textile industry would be worse in January 2009.

Lin Cailang, business promotion director of a Hong King based company, said the company’s export orders in December dropped by 25-30% year on year. Even worse, the company’s domestic orders are also sliding due to the fierce price wars among export companies seeking a share of the domestic market.

In December, 2008, the index for the business activity of China’s non-manufacturing industries was 48.9%. This index was over 50% consistently between January 2007 and October 2008, except during the Spring Festival (Late January-early February), when it was slightly lower than 50%. It has now dropped below 50% for two straight months.