China Poised for Rebound as Luggage Maker Puts Lid on 2012
Months before China closes the lid on the Year of the Dragon, Guangzhou Aoking Leather Co. is ramping up luggage production, adding to signs that the slowdown in the world’s second-largest economy is poised to ease.
“People’s sentiment and confidence in the economy and in their income prospects are improving,” says Song Chunhong, a deputy marketing manager at the company in coastal Guangdong. Sheng Laiyun at the National Bureau of Statistics sees broader signs of recovery in the more-developed seaboard provinces that are usually first to register shifts in the economy’s prospects. “The duck knows first when the river becomes warm in spring,” he said last month, quoting an 11th-century Chinese poem.
While China’s years of 10 percent growth may be behind, a stabilization around 8 percent would help counter what the International Monetary Fund last month called an “alarmingly high” risk of a steeper drop in global expansion. Overseas firms from computer-maker Dell Inc. (DELL) to Hong Kong jewelry makers see sales in China improving in coming months, and domestic manufacturers are more confident, a release showed yesterday.
“We have seen an increasing amount of evidence for green shoots” in China, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong who this week raised his fourth-quarter forecast for economic growth to 7.8 percent from 7.5 percent. The nation’s gross domestic product will rise 8.1 percent in 2013, up from 7.7 percent in 2012, he said.
Manufacturing expanded in October for the first time in three months, according to a purchasing managers’ index released yesterday by the government, while a similar gauge from HSBC Holdings Plc and Markit Economics posted the biggest gain since October 2010. Industrial companies’ profits recorded the first year-on-year gain in September since March, data showed Oct. 27.
Accelerations in consumption and investment and are having an impact just as leaders prepare for a once-a-decade power handover starting with a Communist Party congress next week. The stabilization would be good news for the next generation of leaders headed by Xi Jinping, who is forecast to succeed Hu Jintao as Communist Party general secretary this month.
“China’s looking rather impressive,” said Jim O’Neill, chairman of Goldman Sachs Asset Management in London, who coined the BRICs acronym to describe the large emerging markets of Brazil, Russia, India and China. Data from September and October offer “more confidence that the fourth quarter is likely to be stronger” than the third period, he said.
Recovery is also evident at Wenzhou Hualong Amusement Toys Co., a maker of outdoor child-play equipment for export and domestic sale, where demand is “much better” than six months ago, according to Chen Jianyun, a manager at the company. Larger companies seeing improvement include China Vanke Co. (000002), the biggest China-listed developer by market value, which saw sales increase, and China Shipping Container Lines Co. (2866), which returned to profit in the third quarter.
A rebound would validate the government’s strategy of refraining from the type of aggressive stimulus that unleashed record lending during the global credit crunch. China has refrained from lowering interest rates since a total of two cuts in June and July, and eschewed the scale of the 4 trillion yuan ($586 billion) fiscal stimulus announced in 2008.
Some markets are showing renewed optimism. The yuan has appreciated 0.7 percent against the dollar in the past month, after declining 0.9 percent in January-through-June. The benchmark Shanghai Composite Index of stocks is up 1.5 percent in the past month, paring its drop for the year to 3.8 percent. Yields on 10-year government bonds have risen to 3.58 percent from this year’s low around 3.25 percent on July 12.
The economy may expand 7.7 percent in the October-to- December period from a year before, compared with 7.4 percent last quarter, according to 30 analysts surveyed by Bloomberg News Oct. 18-22.
“There is a significant uptick as we have gone through the quarter,” Amit Midha, president of the Asia division of Dell, the fourth-largest personal-computer maker, said in an Oct. 26 interview.
Growth in coastal export hubs is picking up. Eastern Zhejiang province saw GDP climb 7.7 percent in the year through September from the same period a year before, compared with a 7.4 percent pace in the first half. Guangdong accelerated to 7.9 percent growth from 7.4 percent over the same period, and Jiangsu’s to 10.1 percent from 9.9 percent, according to provincial statistics offices.
The advance in eastern China may reflect that fact that the region’s slowdown “was more significant from the beginning,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “But it is worth noting that inland China growth is still much higher than eastern China. This trend will continue in future years and is an important driver of long-term growth in China.”
Even with a rebound, economists are less sanguine on China’s growth than they were six months ago. Median forecasts in the October survey were for 7.7 percent expansion this year and 8 percent in 2013, compared with April projections of 8.4 percent for 2012 and 8.5 percent next year.
China’s recovery will face headwinds from a raft of challenges facing policy makers. An overhang of debt from loans in 2009-2010 may constrain policy easing while a shrinking pool of workers age 15 to 24, a mainstay for manufacturers, will pressure industrial costs. The ranks of younger workers will slide by 62 million people by 2025 to 164 million, according to the United Nations.
The shrinking labor force means China’s trend growth rate will drop to 6.1 percent for 2016-2020 from 7.2 percent in 2011-2015 and 11.2 percent for 2006-2010, Cai Fang, head of the Institute for Population and Labor Economics at the Chinese Academy of Social Sciences and a senior adviser on demographics to the nation’s leadership, said in August.
The acceleration also may be capped by policy makers’ goal of rebalancing the economy away from investment-led growth toward greater consumption.
“Nobody in Beijing wants a recovery from 7.5 percent to 10 percent,” said Stephen Jen, managing partner at hedge fund SLJ Macro Partners LLP in London and former head of currency research at Morgan Stanley. “Foreign commentators are excited about a U-shaped recovery when China itself is focused on a secular deceleration that is benign.”
Overcapacity, weak private investment and rising costs as the labor supply shrinks also will restrain China’s acceleration, said Tao Dong, head of Asia economics excluding Japan at Credit Suisse Group AG in Hong Kong.
Even so, signs of a comeback are spreading. In yesterday’s official PMI survey, a gauge of output rose to the highest level since May, while an index of new orders indicated expansion for the first time in six months. The HSBC PMI index was at an eight-month high and a gauge of new orders reached the second- highest level in 17 months.
The reports follow September data showing industrial- production growth accelerated for the first time in four months, retail sales rose the most since March and fixed-asset investment gains quickened.
Song, of the Guangzhou luggage maker, said a new focus on domestic sales is helping the company after sluggish exports battered business earlier this year. The vendor is expanding outlets and increasing the number of agents, he said.
“We had a rough start and the situation in the first half was lackluster,” Song said.
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