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Tuesday, July 01, 2008

China Manufacturing PMI June 2008

China's manufacturing expanded in June at the slowest pace since August 2005 as the growth in export orders weakened for a third month, according to a purchasing managers survey. The Purchasing Managers' Index produced by the China Federation of Logistics and Purchasing fell to 52 from 53.3 in May.

The index of new export orders declined to 50.2 from 53.4. A reading above 50 reflects an expansion, below 50 a contraction.

Those for new orders and output also fell, while the input-price index climbed to a record, underscoring the threat to manufacturing from higher costs for labor and raw materials. In the first five months, 2,331 shoemakers closed in Guangdong province, the world's largest footwear production center,according to the China customs bureau yesterday. The principle causes appear to be rising wages and appreciation in the yuan that has eaten into export profits.

The global economic slowdown which has followed the U.S. housing slump added to the increase in borrowing costs as China's central bank tries to fight the rising inflation may mean that China's growth will drop below 10 percent this year for the first time since 2002. One factor here will be the resilience in exports, and there are already signs of some weakening, since overseas shipments climbed 22.9 percent in the first five months of this year, down from the 25.7 percent gain for all of 2007, and in the present climate it is hard to see this trend reversing.


Anonymous said...

Newly-released research report predicts negative outlook for China's economy -


Edward Hugh said...


Thanks for the link. I agree with the basic thrust of the argument, although they do perhaps focus rather one sidedly on the US consumer lock-in. Europe and Japan also soak up a large volume of Chinese exports, and they are both about to hover on the frontier of recession for some time to come now I think (stagflation). So the problem for China is in fact worse, since unlike Germany and Japan it cannot leverage emerging markets to any great extent to support its export dependence. Structurally this now looks complicated.

I also noticed this part, the sentiments of which I do very much agree with:

The year 2004 witnessed the first decrease in the growth rate of the population segment aged 15- 59. The working-age population is estimated to stop growing altogether around 2011. China's "demographic dividend" is forecast to turn into a demographic liability in 2013.4 From 2021 onward, China's population is forecast to continue to decline, according to the report. The Pearl River Delta, a hub of labor-intensive industries, first faced a shortage of rural labor force in 2004, followed by the Yangtze River Delta. The phenomenon is spreading gradually from coastal areas to mainland provinces including Jiangxi, Anhui, Hunan, and Hubei. According to a survey by the Labor and Social Security Department of Hubei Province, the province runs short of 400,000 laboreres annually. The rate of labor shortages in the provincial economic development zone has risen to 38%.

Commenting on the China Youth Daily article, Deng Xiaogang, a social science professor at the University of Massachusetts (Boston) stated, "China's economic growth and foreign trade rely heavily on its labor-intensive products with the cheap labor. When the demographic structure changes entirely, the whole economic structure will encounter dramatic changes and the country will be running short of a labor force. China will be unlikely to properly adjust its economic structure in a short period of ten years. China is not optimistic in the future."