China’s economy in for a roller-coaster ride - economists

20 February 2009 05:30  [Source: ICIS news]

By Judith Wang and Bohan Loh

SINGAPORE (ICIS news)--China looks set for a rough ride this year as the government’s stimulus measures come in bursts, with doubts remaining on how effective they would be in buoying up Asia’s biggest emerging economy, analysts said on Friday.

There was good news on the liquidity front as local businesses received a record yuan (CNY)1,600bn ($234m) in January but economists said they do not expect such strong loan disbursements to be sustained in the coming months.

“Although in recent weeks we have highlighted the near-term upside in economic activities, it does not alter our medium-term outlook of a double-dip scenario,” said Ma Jun, chief economist for greater China at Deutsche Bank.

The actual loan disbursement in January represented 28% of the total CNY5,600bn likely to be loaned out for the full year based on a loan growth projection of 18.5%, said Ma.

This estimate is higher then the Chinese government aim of 17% increase in loans this year.

“If Jan-Feb averages at CNY1,200bn, then the average monthly lending from March through December will have to decline to CNY320bn per month, down by more than 70% from the Jan-Feb levels,” he said citing it as the main reason for an expected dip in the recovery.

“For the medium-term, we stick to our view that the economic recovery will be a W-shaped one,” Ma said.

The liquidity boost helped shore up trades in the petrochemical industry. Some of the country’s petrochemical players have seen some recovery in prices and demand levels since the start of the year. But how long  these conditions will last was hard to say, market sources said.

“We’ve been facing poor sales in the past one week, with daily sales no more than 30% or 40% of our output,” said a source from Zhejiang Lianda, a mid-sized polyester filament yarn producer in eastern China.

In January though, daily sales against output touched almost 100% and margins were highly comfortable for all grades of polyesters, he said.

“Feedstock prices went up too fast, PTA (purified terephthalic acid) producers did not wait for us to catch up with them. But as the prices are falling back, they are paying the price for their impatience now,” said a senior official from Zhejiang Longda, a polyester maker with two polycondensation units in eastern China.

PTA is one of the feedstocks for the production of polyester filament yarn.

“The [price] recovery was not so real after all; the fundamentals just did not support the higher prices,” said the Zhejiang Lianda source.

Deutsche Bank’s Ma said he expected China’s seasonally adjusted annualised quarter-on-quarter growth to be 8% in the first quarter.

The second quarter’s growth will be significantly higher at 12.6%, before easing to 7% in the third quarter and sliding further to 4.3% in the fourth, based on Ma’s estimates in a research note published on Wednesday.

The second and deeper trough in Ma’s economic model for China is in the first quarter of 2010 when quarterly growth would be just 0.6%, which would be followed by a sharp rebound.

Other economists polled by ICIS news had almost similar economic recovery pattern for the mainland.

The better-than-expected showing in China’s Purchasing Managers’ Index (PMI) in January indicated improving domestic demand that should continue into the coming months, Ma said.

Guosen Securities economist Lin Songli said that the slight month-on-month improvement in PMI numbers last month could not be taken as a clear sign of recovery.

Frantic de-stocking activities and the usual lull in industrial production in December just made January look better but the overall numbers still indicated weakness, he said.

Lin said he expected the economic recovery in China to start in the third quarter of 2009 with the second trough occurring in the second quarter of 2010.

Song Seng Wun, regional economist for brokerage CIMB-GK, was even more sceptical: “This W-shaped recovery is really anyone’s guess,” he said.

Most economists expect China’s GDP growth to slow to 6.0% this year after ending five years of double-digit growth in 2008.

China recorded a 9.0% growth last year as external demand significantly deteriorated, with the October-to-December quarter registering dismal growth of 1.5% from the third quarter.

($1 = CNY6.83)

With additional reporting by Salmon Aidan Lee

To discuss issues facing the chemical industry go to ICIS connect

By: Bohan Loh
+65 6780 4359

< previous article(ICIS Chemical Business podcast November 2, 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly