China Economy

China’s Economy Weakens as Global Crisis Lingers

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China’s slowdown in manufacturing activity and other vulnerabilities throughout Asia have weakened the region in the face of the European crisis. Its position as the stronghold against Europe’s devastating situation and the U.S.’s disappointing recovery is fading away.

Pascal Lamy of the World Trade Organization said Asia is becoming more and more “interconnected with the rest of the planet and I don’t think this relative immunity will be forever.

“I would expect, given what is happening in other parts of the world economy, this region to be more affected than it has been so far,” he continued.

And reality is confirming his suspicions at rapid speeds. Individuals and organizations are calling on the nations’ governments to boost their economies before the global situation worsens.

“China’s economic slowdown is more severe than expected. Export orders are continuing to fall, which is definitely related to Europe’s debt crisis,” said Citic Bank International Hong Kong’s Liao Qun. “Uncertainty in Europe is high. China needs to move faster and more aggressively to speed up loosening of its monetary and fiscal policies.”

 

Standard & Poor’s Downgrade; Asian Stocks Slip

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Standard & Poor’s recently downgraded nine European countries, including France. The ratings imply that a solution to the issues in the region has yet to be found as the Eurozone debt crisis festers. Though the downgrades were expected by many, the situation remains shaky as concerns begin to spread.

“The downgrade set a nervous for this week’s markets as we approach more significant hurdles in the evolution of the Eurozone crisis,” said Ric Spooner of CMC Markets.

Asian stocks have slipped as a result of the ratings. MSCI’s index of Asia Pacific shares, excluding Japan, fell 0.3% after reaching a one-month high last week, while Japan’s Nikkei slid down to 1.51%. Hong Kong’s Hang Seng fell 1.01%, the Shanghai Composite 0.75%, and Korea’s Kospi dropped 1%.

Markets across the globe are bracing themselves as negotiations regarding the Greek and Eurozone debt remain relatively stagnant despite several efforts to get them moving.

“Failure of these negotiations remains a significant contagion risk,” Spooner explained.

At the moment, experts have projected an 8.7% growth in China’s economy for 2012. This growth will have a significant impact on the region, and will ease numerous financial pressures. If GDP does not, in fact, meet expectations, it may result in export-led downturns that China will be unable to resolve.

China’s Factor Sector Drops to Three-Year Low

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China’s factory sector decreased dramatically, the most in 32 months, in fact, as the economy continues to weaken and concerns regarding a global recession heighten.

The severe fall in the HSBC flash PMI from 51 to 48 this past month reflects domestic weakness as a result of less output and new orders, even as exports increase. The flash PMI was the lowest since 2009. Added to the already unstable world economy, the news has sent financial markets into a quiet frenzy.

“I’m not sure if it (PMI) is a tipping point, but I think it adds to the evidence,” said HSBC economist Qu Hongbin. Beijing has initiated several measures already, aimed at helping small businesses, to support the economy. The sharp drop in inflationary pressure shows that the city still has hope if it brings in additional, special measures.

“There remains no need to panic,” Hongbin said. “Easing inflation provides room for more easing measures, which will keep China on track for a soft landing.”

Asia’s Trade Increases, China Strengthens Relations with Canada

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Though the Global Financial Crisis has not been resolved, the increase in Asian trade has encouraged many investors and companies to resume business in Chinese operations.

APM Terminals, for example, the port operations division of AP-Moller Maersk Group, has recently announced it will be continuing its investments in the region following a short pause as a result of the crisis.

Martin Christiansen, the division’s chief operating officer and head of its Asian-Pacific operations said “We are actively looking for investment opportunities in emerging Asian markets such as China, Vietnam and Indonesia.”

He added that a slight reduction of exports from China was to be expected. “The growth rate of China’s container volumes in the future is expected to be lower than the past, particularly China’s export volumes to mature markets such as the United States and Europe.”

Other companies and regions have also taken interest in China’s potential. China’s ambassador to Canada, Zhang Junsai, has stated that the relations between the two countries have improved dramatically over recent months. He continued, saying he expected trade to continue to increase, as well as foreign investment.

“China is playing an increasingly peaceful and constructive role in the world. China has performed very well during the financial crisis and I think all this is seen by the Canadian people that China is making contributions to the world economy,” Mr. Zhang said. “More importantly, China has a huge market. There is a great potential for both countries to develop friendly relations.”