China factories struggle as weak exports drag industry in Asia

Reuters

Email Print

A worker drives a forklift to transport aluminum bars at a factory in Anshun, Guizhou province, China, July 1, 2013. A worker drives a forklift to transport aluminum bars at a factory in Anshun, Guizhou province, China, July 1, 2013.

RELATED NEWS

China's factory activity shrank for a 10th straight month in December as surveys across Asia showed industry struggling with slack demand even as the policy cupboard is looking increasingly bare of fresh stimulus.
Uncertainty over the economic outlook was exacerbated by a flare up in tensions between Saudi Arabia and Iran, that has sent investors scurrying from stocks to safe havens such as the Japanese yen.
Japan's Nikkei .N226 fell over 2 percent and Shanghai lost more than 3 percent.
The Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) slipped to 48.2 in December, below market forecasts of 49.0 and down from November's 48.6.
That was the lowest reading since September and well below the 50-point level which demarcates contraction from expansion. It followed a fractional increase in the official PMI to 49.7.
There was a faint stirring of hope as PMIs in South Korea and Taiwan both edged above the 50 mark, though more thanks to a pick up in domestic demand than any revival in exports.
Weighed down by weak demand at home and abroad, factory overcapacity and cooling investment, China is expected to post its weakest economic growth in 25 years in 2015, with the rate of expansion slipping to around 7 percent from 7.3 percent in 2014.
"Absent vibrant external demand, we think it's a consensus view that China's GDP growth is poised to slow further to 'about' 6.5 percent in 2016," ING said in a research note.
The drag from industry comes as China makes gradual progress in its transformation to a more service-driven economy.
An official survey on the services sector showed activity quickened in December, with its main index rising to 54.4, from November's 53.6, according to the NBS.
A marked pick up in service activity also helped spare Singapore's blushes by rescuing growth last quarter. The city-state's economy expanded by an annualized 5.7 percent in the fourth quarter, far above market expectations thanks to a 6.5 percent jump in services.
China does have room to ease reserve requirements for banks and loosen government purse strings. It has also been steadily nudging its currency lower.
Others in Asia are more constrained, in part because they have already done so much.
The Bank of Japan last month tweaked its asset buying program but stopped short of a further expansion.
Instead, it has been experimenting with activist investing - buying shares to support firms that "proactively" spend more on physical and human capital.
Export drought
A common cause of manufacturers' woes has been an unexpectedly deep downdraft in world trade.
South Korea last week reported exports had dropped for the 12th straight month in December, the worst yearly performance since the 2008-2009 financial crisis.
Carmaker Hyundai Motor (005380.KS) on Monday forecast a difficult year ahead after missing its target in 2015 for the first time since the 2008 global financial crisis.
"Sluggish growth in China, sustained low oil prices and stunted growth in emerging economies due to higher rates in the U.S. pose risks to exports this year," was the gloomy outlook of the country's Ministry of Trade.
South Korea is the world's sixth-largest exporter and the first major country to publish December trade figures.
The prognosis was no brighter from IMF Managing Director Christine Lagarde, who expected global growth to be "disappointing and uneven" this year due to rising interest rates in the United States and the slowdown in China.
The U.S. version of the PMI is due later Monday and is expected to show another month of contraction at 49.0.
Yet the service sector has been faring much better and its labor-intensive activity has been the driving force behind a string of strong payrolls reports.
The December jobs report is on Friday and any repeat of November's rousing numbers could challenge the market's cozy assumptions that further interest rate rises will be slow in coming and limited in scope.

More World News