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Signs that slowdown is easing in China

Publication Date : 02-10-2012


Sales at Xia Xiaolin's leather bags stall have fallen to a three-year low and she worries she may have to shut down soon.

"More than 10 bag sellers out of the 100 or so nearby have closed these few months, although some say they are just taking a break temporarily," she said at a vast bags and hardware mall here in Yiwu, a city known for supplying more than half the world's Christmas decorations.

"But I got two new orders in September. Maybe this is a sign that the poor business from my customers in the United States, South America and India will turn for the better eventually."

Small businesses like hers are not the only ones searching for a glimmer of hope that China's unexpectedly protracted slowdown may be easing.

Yesterday, a slightly improved reading in an official survey of Chinese factories led some state analysts to suggest the economy is set to stabilise.

And more government support may be on the way, with policy- easing measures widely expected.

The purchasing managers' index (PMI) indicated that the manufacturing sector contracted for a second month to 49.8 last month, although this is less severe compared to the 49.2 of the previous month. A reading of less than 50 signals contraction.

"The data for September confirms a trend that China's economy is bottoming out," said analyst Zhang Liqun, who is with a State Council think-tank.

But others such as Citigroup economist Ding Shuang cautioned that the uptick was not enough to indicate a reversal in China's slowdown. There was other data pointing to further weakening.

In particular, a private PMI survey showed that factory output among smaller enterprises contracted for an 11th straight month in September.

And export orders declined by the fastest rate in 42 months, data from HSBC and Markit Economics released last Saturday showed.

Chinese factories may have to slash prices to grab shrinking orders for Christmas, even as they seek new sources of demand in markets such as Latin America.

"Declining exports and imports may pose the biggest challenge for China's economy in the coming months," Wei Jianguo, former vice-minister of commerce, told the Shanghai Daily last week.

Companies in Yiwu, the world's largest commodities market, are feeling the pressure.

"A lot of American and European buyers are ordering less, say four or two Christmas balls per packet instead of six," Mei Lin of Youlide Arts, which sells festive trees and ornaments, told The Straits Times last week.

"But fortunately for us, our Latin American and Middle Eastern customers have not cut orders much."

The industry's total sales this year could fall by as much as 20 per cent from last year, according to Yiwu Christmas Products Industry Association's secretary-general Chen Jinlin.

The struggles of China's key exporters and factories have added to expectations that Beijing will ease policy.

The benchmark Shanghai Composite Index, which briefly dipped below the 2,000 psychological level last week, surged a combined 4.1 per cent on Thursday and Friday on hopes of new stimulus.

China markets are closed this week for the national day holidays.

But so far, the central bank has delayed further cutting interest rates which were last lowered in June and July, partly to avoid a rebound in housing prices.

Still, with growth forecast in a Reuters poll to fall to 7.4 per cent in the third quarter from 7.6 per cent in the second quarter, Beijing may soon take action.

And with the date of the 18th Party Congress - where the ruling Communist Party will announce a new generation of leaders - fixed on Nov 8, Beijing can turn its attention to more stimulus, suggests Bank of America Merrill Lynch economist Lu Ting.

"With membership of the Politburo Standing Committee likely settled, top politicians should refocus on economic policymaking," he wrote in a report.


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