Hong Kong: Many Chinese have been expecting a post-Olympics economic slowdown, but it has already started and the Games have not even begun.
Chinese factories reported a plunge in new orders last month. Exports are barely growing. The real estate market is weakening, with apartment prices sinking in southeastern China, the region hardest hit by economic troubles.
Feeling the heat: A worker at a textile factory in Jiangsu province. Weak demand from the US and Europe is hurting Chinese exporters. Photograph: Kevin Lee / Bloomberg
The trends, which actually have little to do with the Olympics (the Games themselves, which open on Friday, are small compared with the size of the economy), are being felt worldwide.
China’s slowing growth is one reason that petrol prices have fallen in the US, for example. Similarly, world prices for metals like copper, tin, zinc and aluminium have tumbled in the last several weeks, as voracious Chinese factories have closed, or cut back their consumption.
But while China’s difficulties may reduce inflationary pressures around the world, they threaten to slow further the already tenuous global economic growth. “China has slowed down a lot already, but it’s going to slow down more,” said Hong Liang, the senior China economist at Goldman Sachs Group Inc.
Economists expect growth to slip from its recent pace of 11% or more annually to as low as 9% or 9.5% over the coming year. Most nations would envy that rate. But 9% growth will make it much harder to supply jobs to the millions of Chinese moving to cities from rural areas in search of work. And, any slower growth could prove a shock to workers who have been receiving double digit pay increases each year, as companies struggle to find enough labour to keep factories open.
How Chinese authorities manage a slower economy, and its effect on China’s 1.3 billion people, will be a test for the government. It seems to be responding quickly. A politburo meeting on 25 July replaced the previous national economic goals, preventing overheating of the economy and controlling inflation, with new targets. As enunciated by President Hu Jintao in recent appearances, the objectives now are to seek fast and sustained economic growth while still keeping inflation under control.
“We must maintain steady, relatively fast development and control excessive price rises as the priority tasks of macro adjustment,” he said on Friday at a rare news conference.
Having put a series of brakes on the economy over the last five years to keep inflation under control, Chinese policymakers are now removing some to prevent growth from slowing too much.
For example, after letting China’s currency rise sharply against the dollar in the first half of this year, China’s central bank has actually pushed it down against the dollar in each of the last four trading days, including a decline of 0.13% on Monday. This is helping to preserve the competitiveness of Chinese exporters in foreign markets, although at the risk of angering the US and other trading partners.
In the last several days, Chinese authorities have also raised export tax refunds for garment manufacturers — an industry previously slighted by regulators, who remain more interested in promoting higher technology industries. Policymakers have also reportedly moved to ease lending limits on banks.
Weak demand from the US over the last year, and now from Europe as well, is part of China’s emerging problem. This weakening of exports has been particularly true of light manufactured goods from south-eastern China, one of the country’s two main export areas, along with the Yangtze river delta region around Shanghai.
Demand is beginning to weaken for big-ticket purchases. J.D. Power and Associates just cut its forecast for car sales in China this year to 5.95 million — still up from 5.42 million last year, but much less of an increase than the previous forecast of 6.2 million.
More serious for the broader Chinese economy are signs that the real estate market is weakening after years of climbing prices that had prompted warnings of a possible bubble. Here again, the biggest trouble seems to be in southern China
The timing of the slowdown at the beginning of the Olympics appears to be largely coincidental. Beijing accounts for slightly more than 1% of China’s people and less than 5% of its economic output. So even heavy spending in the Beijing area on Olympic sites is unlikely to have had much of an effect in lifting growth in the last months or in depressing growth now that the construction has ended.
But fears of a post-Olympic slowdown have become part of popular culture in China, and a subject of great interest among stock market investors. Chinese stocks have fallen by more than half after soaring to records in October.
The earthquake in May in Sichuan province does not appear to have hurt the economy, and may even help economic output as towns in the area start rebuilding with heavy government spending.
More broadly, China’s enormous investments in new roads, ports, rail lines and other transportation networks are starting to show productivity gains that could help the country weather a global economic downturn better than most.
And foreign investment is still pouring into the country, increasingly directed at higher-technology industries.
Chris Woodward, the managing director for China at Ryder System Inc., the big logistics company particularly active in shipping auto parts, said American companies were still expanding in China and were becoming more focused on the market here even as Chinese exports slow.
“People have made huge investments in the infrastructure, and it’s not just the physical infrastructure,” he said. “It’s all the training and people development.”
Hilda Wang contributed to this story.
©2008/ The New York Times