China's Big Week

Sydney, Nov 14, 2008 (ABN Newswire) - It's been a big week for China and its attempts to stabilise and then kick start its slowing economy.

Sunday night we saw the release of the surprise $US586 billion ($A870 billion) two year stimulus package, plus the abandonment of controls on loans for small and medium businesses.

Then news that inflation fell in October to 4% and that while prices grew 6.6% in the year to October: both measures were down from September's figures and indicative of a cooling economy as commodity and food prices fall.

Then while exports remained solid in October, the trade surplus narrowed.

The trade surplus, which had already hit record levels in September, grew a further 20% last month to $US35.2 billion after growth in exports slowed modestly. It was the third record in a row.

The surplus with the United States rose 13.6% to $US17.5 billion, while that with Europe rose 12.2% to $US15.6 billion

But the reason for the rise was a sharper drop in import growth, representing a combination of falling commodity prices, especially oil, food and metals, and the slowing pace of activity in the economy.

Then on Wednesday China revealed it had cut taxes on 28% of all its exports, adding to the spending package's cost.

In total the government raised the export tax rebates paid on more than 3,700 types of goods. The initiative, which starts December 1, is the third of its kind since July.

The government has decided to scrap duties on some steel products, chemicals and grain exports.

This is on top of three interest rate cuts in the past 10 weeks totalling 0.81%. Another cut could be in the offing as other countries continue to reduce their rates.

And then yesterday news that the economy is in real trouble with figures showing that industrial production grew at the slowest rate for seven years in October.

Industrial output rose 8.2% in October, compared with the same month in 2007, after rising 11.4% in September.

Like in Japan, the slowdown is being forced by the slowing pace of export orders, weakness in real estate, and the global crisis and slowdown.

Anecdotal and official reports tell stories of thousands of toy makers closing this year, hundreds of sports sneaker manufacturers shutting shop, with many departing for Vietnam, Sri Lanka and Italy.

Steel companies are cutting production or shutting. Metal processors in the lead, zinc, aluminium, nickel and copper industries have closed or have cut production levels because of falling demand.

Iron ore and coal imports are falling, accompanied by prices on the spot market for both commodities.

Aluminium company of China has cut production by around 18%, Vale, the big Brazilian resources group, cut nickel production at a China plant by 65%, and car companies like Peugeot have cut workers after sales slowed and then dropped.

Construction is falling because of the plunge in housing activity and prices. 

Some western analysts say China will undergo its own subprime lending crisis next year.


 

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