Home Blogs Asian Chemical Connections China Politics Before Economics

China Politics Before Economics

Business, China, Company Strategy, Economics, Europe, US
By John Richardson on 21-Sep-2012

fp0921-manufact-pmi.jpgBy John Richardson

CHINA’S manufacturing activity did, at least, stabilise in September after hitting a nine-month low in August, according to the latest preliminary HSBC manufacturing purchasing managers’ index (PMI).

The PMI improved to 47.8% in September compared with 47.6% in August.

Elsewhere, as the chart above shows, Eurozone and US PMI indices declined.

The composite Eurozone PMI fell to 45.9 in September from 46.3 in August.

Meanwhile, US manufacturing closed out its weakest quarter in three years. The Markit PMI index averaged 51.5 Q3, below the 54.2 registered between April and June, for its worst showing since the third quarter of 2009.

Of the preliminary China September PMI reading, Qu Hongbin, HSBC’s China chief economist, said: “Manufacturing activities remain lacklustre, thanks to weak new business flows and a longer than expected destocking process.

“This is adding more pressure to the labour market and has prompted Beijing to step up easing over the past few weeks.”

“It’s still soft,” Shane Oliver, head of investment strategy at AMP Capital Investment, was quoted as saying in this article.

“The good news is it hasn’t got any worse, the bad news is it’s no better really. Statistically there’s no change. It’s telling us Chinese growth is not losing further momentum but recovery remains elusive.”

The question remains whether Beijing has the time and/or the legitimacy to take firmer action to turn the economy around, because it so wrapped up in the leadership transition.

“Because China’s current senior politicians are about to step down, they don’t feel able to take any major policy initiatives on behalf of their successors,” said an Australian-based resources consultant.

More stimulus would also risk higher consumer-price inflation and, in contrast, even worse producer-price deflation.

A connected political issue – the China-Japan dispute over the East China Sea islands – poses a further risk.

“China’s government is trying to deflect attention away from weak economic growth by allowing demonstrations against Japan,” said a chemicals industry executive.

“I think that one of the underlying causes of the expression of anger against Japan is the sense among working-class people that they have lost out during China’s economic boom,” he added.

“The gap between the rich and poor has widened since the 2008-2010 economic stimulus package, and the cost of living for the average worker earning around $200 a month is a major issue. Property in China’s big cities remains way too expensive for most people.”

The executive worries that a miscalculation by either Japan or China could lead to military conflict.

“The US is obligated to side with Japan, and I think that most other Asian countries would take sides with the US,” he said.