Chinese and Asian economies are feeling the trade slowdown
Manufacturing and property, the two main engines of China’s investment are plagued by overcapacity, and also new loans from Chinese banks fell in July to CNY 540.1 billion (around USD 85.1 billion) and the slowdown is affecting sooner or later also important Asian raw material suppliers to China. And wages and prices in China are on the hike
China’s exports are suffering because of the non-ending debt crises in Europe and the rather bumpy road of the U.S. economy. Falling order volume and fading profits have hit Chinese business demand for loans, medium- and long-term loans to enterprises – a key to investment appetite – fell in July to CNY 92 billion or the lowest figure in the ongoing year, in June the figure was CNY 163 billion. The cut of interest rates in June and July by the Bank of China did not bring the needed remedy and business confidence was not restored by the Chinese Government.
Chinese exports to the European Union fell in July sharply (-16.2 %) in comparison to the same month in 2011. The growth export rate to the U.S. fell from June 10.6 % to 0.6 % in July. China still has a goal of a 10 % annual trade growth.
Last Friday the Chinese authorities launched a new investment program in various regions to construct roads to boost its economy. Also public spending in other areas is ramping up to support growth. Fiscal spending was up 37 % in July from a year earlier and compared with an 8.2 % increase in revenue. The government is making use of low public debt to shift spending into stimulus mode. Economists expect that the third quarter of 2012 will be in line with the second quarter’s growth rate of 7.6 %, the lowest since early 2009.
China’s import growth in July was only 4.7 %, signalling is slowing down its buying from other nations of the region. China’s imports from ASEAN states were down 0.6 % in July from a year earlier and mostly commodity exporters and countries exporting into China’s supply chains are affected.
All in all it reflects the disappearing demand in the developed world. China exports also less (-1 %) to Japan and there is a price decline for commodities such as oil, copper and coal where value rather than volume is measured. The financial markets reacted negatively to the disappointing Chinese trade data and currencies in Australia and Malaysia fell and also Hong Kong’s Hang Seng Index was down 0.7 %. The impact of the slowdown is noticeable in Singapore, Hong Kong and Taiwan. Singapore was revising its second-quarter GDP figures (-0.7 %) in the second quarter on an annualised, seasonally adjusted basis.
As China, Japan and India, the continent’s top economies struggle to varying degrees, their pain is transmitted to their trading partners. For instance Japan is an important importer from commodities to cashmere sweaters bought in the first half year just 5 % more from the rest of Asia than the year earlier period, a major shift from the double-digit growth of recent years. Companies exposed to the drop in construction in China and India feeling it through lower raw-material prices. Australian and Indonesian coal mines companies are hurt in profits and investment. The sharpest drops in trade are witnessed in South Korea and Taiwan. Taiwan saw a drop of exports of 12 % in July against the same month in 2011 and South Korean exports were down 8.87. % to USD 44.6 billion, the largest percentage fall in nearly three years and exports count for half of the GDP Gross Domestic product. However the Philippines June exports were up a weak 4.2 % due to the drying-up demand for electronic components.
China’s export competitiveness is also to blame. Since China’s export growth peak in 2004 at 35.4 % year on year costs for manufacturers have increased across the board. Average wages have risen more than 150 % (!), land prices were up more than 70 % and electricity prices are up more than 30 % and the CNY has appreciated more than 30 % against the USD. The vast majority of China’s exporters compete on price, with no edge on technology or brand to distinguish them. Adding to this situation is a decelerating growth in the Chinese industrial output. Experts believe that around the deteriorating export competitiveness it will be difficult to support growth in China’s GDP targeted at 7.5 % this year.