Sunday, November 27, 2011

China comes face-to-face with economic slowdown

Economists have long been downplaying the impact of the crisis in Europe on China's growth, but realities on the ground are hard to ignore. Fearing inflation, Chinese authorities have been slow to respond with a policy easing, but they are starting to pay attention.

Here is a quick video interview with Huang Yiping from Barclays Capital about the economic situation in China. Below are some highlights:

1. China Investment Corporation (CIC), China's sovereign wealth fund is involved in Europe. It has been buying some sovereign bonds, but is more interested in "real" asset purchases. For example as pressure builds on Italy to privatize some of the state assets, CIC may be a buyer.

2. Monetary policy easing in China has begun but is still in the form of "fine-tuning". Nevertheless the government is intent on pushing down property prices, thus will not support real estate based lending - yet.

3. China is pushing banks to do more lending to small and medium size businesses (SMEs) who are having a tough time obtaining credit and are struggling from the global economic downturn.

4. Barclays expects an official easing announcement in Q1 of next year in the form of a cut in reserve requirement ratio.

The slowdown of China's economy - much of it driven by the crisis in Europe - is starting to become visible.
The Sydney Morning Herald: As orders have dropped, factories have started to lay off workers, cut overtime and in some cases withhold pay. In Dongguan, scene of the most violent of last week's strikes, some 450 small and medium-sized factories have closed in the past 10 months as the overseas market has shrunk.
Propelled by years of strong demand and easy credit, China's manufacturers have become overextended and are having trouble facing a slowdown. In fact most of these companies have never seen a real slowdown and are totally unprepared to deal with the cyclical nature of the industry. More from the Sydney Morning Herald:
Thousands of workers clashed with police on Thursday at a footwear factory in the city of Dongguan after 18 workers were reportedly laid off and overtime was cut. A thousand workers went on strike on Tuesday at the Shenzhen factory of a Taiwanese electronics company. A day earlier, hundreds reportedly struck at a Shenzhen company that makes underwear and lingerie. On October 28, hundreds of employees of a Dongguan furniture company protested in the streets after the factory boss disappeared without paying them three months' salary.
This unrest may continue to grow, spreading to a number of provinces. China's officials may be able to cook the growth numbers a bit, it's hard to ignore the nation's workers' discontent. China, as usual, resorts to their propaganda machine. "Are Chinese people truly miserable?" asks People's Daily:
"Misery" is a regular word today. From emotions reflected in the media and online, the Chinese sense of misery is increasing while happiness seems to be dwindling.
And the answer to the misery question from the propaganda machine (People's Daily) is:
Chinese people should believe that a better life awaits them and that the next generation will embrace a brighter future. People should also be confident in a more democratic and fairer society with less corruption.
 Welcome to the "brighter future".
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