Date :Thursday, January 1st, 2015 | Time : 11:17 |ID: 11756 | Print

Sluggish China hits economy

SHAFAQNA – CHINA’s economic slowdown is intensifying, with manufacturing output the weakest in 18 months and the steel industry set for its first fall in annual production for more than three decades.

With the economy now likely to fall short of the official 7.5 per cent growth target this year, economists are predicting further ­interest rate cuts by the central bank in an effort to arrest the slide.

The state of the Chinese economy, which has taken a record 35 per cent of Australia’s exports over the past 12 months, will have a critical bearing on Australia’s economic performance and budget outcome this year.

The official monthly survey of the vast Chinese manufacturing industry shows it is just treading water. The manufacturing index, for which a score of 50 points marks the line between expansion and contraction, registered 50.1 points in December, down from a peak of 51.7 points in July.

The official survey mainly covers the large state-owned companies. A rival survey by bank HSBC that covers smaller ­privately owned businesses shows it is contracting, with an index measure of 49.6 points.

“The decline of both official and HSBC PMIs (performance of manufacturing index) suggests that China’s manufacturing sector, especially those industries ­related to property market, is still struggling due to sluggish domestic demand,” ANZ’s chief China economist, Li Gang Liu, said.

The downturn in the property sector, where sales are down by ­almost 10 per cent from a year ago and prices are off by an average of about 4 per cent, is the biggest single contributor to the weakness in steel production that is depressing iron ore prices.

World Steel Association figures show that in the 12 months to November, China’s steel production was down 16.4 million tonnes to 805 million tonnes, the first such fall since 1981.

From 2001 to 2013, China’s steel production averaged 16 per cent growth, which was enough to lift output more than sixfold, but the result has been excess ­capacity, with mills trying to offload steel not needed by domestic markets with exports.

Mr Liu-Gang said Chinese data showed a lift in steel output in ­December, but the weakness in property markets continues.

Historically, China’s housing markets have rebounded rapidly from downturns, but large stocks of unsold apartments are depressing prices. Some analysts expect central bank rate cuts will stabilise house prices, particularly in major cities over the next few months.

“We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing in the coming months,” HSBC chief economist Hongbin Qu said.

Mr Liu-Gang said Chinese authorities were likely to tolerate slower growth rates, recognising the economy needed to adjust.

“A massive policy easing is unlikely in 2015, therefore the ­traditional industrial sector could still be under pressure.”

Treasury expects China’s economy to grow at 6.75 per cent this year. Several analysts, including the British Lombard Street ­Research consultancy, ­believe growth could fall a lot lower.

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