MONTREAL - The latest data from Taiwan and
mainland China suggest the slowdown in
export-dependent Asian countries has yet to reach
its low point, even as Beijing indicates it will
not introduce recovery measures on the scale of
its 2008 economic stimulus, worth around US$600
With industrial production rising
at the lowest pace since 2009, and exports held
back by the European debt crisis and austerity,
Chinese Premier Wen Jiabao last week called for a
greater focus on growth. Yet on Wednesday stocks
fell in Shanghai and Hong Kong on low expectations
of new large-scale measures. A report in Xinhua
this week said various government agencies would
take their own steps to stabilize growth.
The HSBC/Markit flash purchasing managers
index (PMI) for China fell to 48.7 for May from
April's 49.3. The PMI signals
economic expansion for
values over 50 and contraction for values below.
Consequently, this reading suggests a slight
exacerbation of the first quarter's slowdown. The
PMI from the China Federation of Logistics and
Planning, which tracks large and state-owned
businesses, was more optimistic, rising from 53.1
The HSBC/Markit PMI focuses, by
contrast, on smaller and medium enterprises in the
private sector; and the slowdown that it suggests
appears to be confirmed by the fall in industrial
production growth in April to 9.3% year-on-year
from March's 11.9%.
investment (FDI) in China fell 0.7% year-on-year
in April to US$8.4 billion, also an anemic
performance. Total FDI in China has fallen 2.4%
for the first four months of the current calendar
year. FDI last year rose only 9% from 2010, when
it surged 17%.
The economic picture is no
more cheering in Taiwan, where export orders
tumbled 3.5% in April from a year earlier, a
steeper decline than the 1.6% figure for March and
considerably worse than the consensus expectation
of a 0.5% fall.
The island's unemployment
rose in April to 4.2% from March's 4.1%
(seasonally adjusted), while the Consumer Price
Index jumped 0.9% month-on-month, even before
electricity prices are slated to increase
following the government's termination of fuel
subsidies over the next two months.
Singapore, which is still more
export-dependent than Taiwan, at present is
bucking this negative trend. Non-oil domestic
exports rose 8.3% year-on-year in April, better
than the 5.6% consensus expectation and reversing
March's 4.3% year-on-year decline. Hong Kong,
Japan, and South Korea all propelled Singapore's
export growth, with Europe and the US notably
lagging in demand increase.
Hopes for a
stimulus package from Beijing to counter the
mainland downturn have so far prevented the
region's stock markets, a six-to-nine month
leading economic indicator, from totally falling
out of bed. Nevertheless, the financial press has
begun to give more attention to "hard landing"
scenarios for the Chinese economy.
past, much of that attention has focused on
prospects for a decline in the annual growth rate
to below the canonical 8% level that is held to be
necessary to create enough jobs to prevent social
unrest from spreading further. Most would now
consider a decline to no lower than 7% as
qualifying as a "soft landing".
it is increasingly recognized that the Chinese
banking system is open to various kinds of
financial risks, and that any kind of a real
crisis in this sector, particularly in the
real-estate sector, could create a "hard landing".
In 2009, China started to introduce
various measures to slow down property speculation
that took off after the economic stimulus of late
2008. Their impact started to become apparent
since late last year, when house prices started to
fall in October from record highs. In April, home
prices fell 1.2% for a second month, while in the
same month the average home sale price of Vanke,
the country's top developer by sales, hit a
32-month low, according to Reuters. The trick now
is to prevent a property crash. Beijing has
several tools at its disposal to prevent that. It
has already cut the banks' required reserve ratio
three times in six months, most recently on May 12
- effectively increasing the amount of cash banks
can lend. The People's Bank of China is next
expected to cut interest rates, while debts of
provinces and municipalities will be somehow
rolled over so as to prevent their falling due in
the near future. A third available instrument is a
stimulus plan to promote consumption.
Kaan, director of equity sales at Louis Capital
Markets argues that a stimulus is "in the works"
because of Premier Wen's open declarations that
this was needed. "What China is doing is focusing
on certain sectors of the market: the domestic
market, infrastructure and consumer staples," said
Kaan, as quoted by MarketWatch.
Nevertheless, some observers fear that
even all these measures may not suffice to prevent
the current correction in the property market from
taking on a momentum of its own. In that case, a
hard landing for the Chinese economy as a whole
may be expected in 2013. The economy's growth rate
between now and December will give some further
inkling how likely that scenario may be.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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