International | Dec 01 2008
By Chris Shaw
Many in the market expect the CNY4trn stimulus package announced by the Chinese government will go a long way to maintaining growth in the economy. Meanwhile, economic indicators show why the announced super-stimulus package had become a necessity. Today’s release of the latest survey into operating conditions in the Chinese manufacturing sector by CLSA Asia-Pacific Markets confirms the recent trend of rapidly deteriorating Chinese indicators.
The group’s Manufacturing PMI survey fell in November to a reading of 40.9 from a reading of 45.2 in October, making it the fourth successive month the reading has declined. Output, new business and employment all contributed to the fall, as each category recorded series record falls in monthly terms. CLSA suggests the falls reflect both the weak economic environment and poor levels of demand.
Given falling new order levels, Chinese companies have attempted to clear existing contracts at an increasing rate, which is shown by the level of work-on-hand declining for the fourth month in a row. As CSLA points out, Chinese companies are dealing with this in part by cutting jobs in an attempt to lower their labour overheads. They are also reducing input buying levels, as pre-production inventories are being reduced in response to lower demand.
One key point from the data, according to CLSA head of economic research Eric Fishwick, is the survey shows November was the first month where weak overseas demand overtook what had been until now a primarily domestic slowdown.
Fishwick expects export orders to weaken further in coming months, which will result in further cuts to production and employment. While costs are falling, the benefit of this is being offset by lower prices for output as businesses try to retain market share. This means there has been no positive margin impact from the fall in input costs.
The November survey also confirms China is not immune to the global slowdown. This implies stimulating growth in the Chinese economy is likely to prove difficult given the lack of positive growth drivers from the rest of the global economy.