China State-Driven Rebound at Risk as Small Firms Suffer
China’s growth rebound, forecast to have gathered pace in November, is bypassing smaller businesses in a sign the government may need to step up policy support to secure a more broad-based recovery.
Industrial production growth probably accelerated for a third month to 9.8 percent from a year earlier, while retail sales probably rose 14.6 percent, the most since March, according to median estimates in Bloomberg News surveys before data due Dec. 9. At the same time, 80 percent of small businesses polled by a state-run association said they hadn’t seen any “obvious benefits” from government policies.
China’s rebound from a seven-quarter slowdown is being driven by state-funded transport projects, boosting the shares of railcar makers such as China CNR Corp. even as the benchmark stock index dropped. The focus on infrastructure and the lack of a more widespread pickup may threaten the sustainability of the economic recovery.
“The recovery is uneven as the recent rebound is mainly driven by government-sponsored investment projects,” said Ding Shuang, a Hong Kong-based economist with Citigroup Inc. “Since the policy easing this time is more measured than previous rounds, the rebound is likely to be mild and may not persist. More support is needed for smaller firms to sustain growth and jobs.”
China’s economy is stabilizing and positive factors are increasing, the ruling Communist Party’s top decision-making body said this week in its first public assessment of the economy under new leader Xi Jinping. Authorities will put “enhancing quality and efficiency of economic growth at the center” in 2013, the official Xinhua News Agency cited the Politburo as saying at a Dec. 4 meeting.
In comments made Nov. 30 and released by Xinhua last night, Xi said that while the “fundamentals of the economy are healthy” China’s challenges must not be underestimated. Slow global growth is set to persist, domestic companies are troubled by rising costs and weak capability to innovate, while “conflicts” are increasing between insufficient demand and excessive production capacity, Xi told a meeting of non-party officials.
The National Bureau of Statistics will also release inflation and investment data on Dec. 9. Consumer price gains probably accelerated to 2.1 percent from a year earlier while the decline in the producer-price index narrowed to 2 percent, Bloomberg surveys show. Fixed-asset investment expanded 20.9 percent in the first 11 months of this year, up from 20.7 percent in the first 10 months, according to the median of 31 analyst estimates.
Customs administration data due Dec. 10 may show export growth cooled to 9 percent in November from a year earlier, while the gain in imports slowed to 2 percent, according to Bloomberg surveys.
The benchmark Shanghai Composite Index rose 1.6 percent, capping the gauge’s biggest weekly gain in 13 months, on optimism the data will show the economy is picking up.
In Asia today, Australia’s trade deficit widened less than economists predicted in October as exports withstood a slower global economy and capital goods purchases increased. Malaysia’s overseas sales fell for the third time in four months in October as shipments of palm oil and natural gas declined while Taiwan’s exports in November rose 0.9 percent from a year earlier, trailing the median economist estimate for a 7.8 percent increase.
In Europe, the U.K. and Germany will release October industrial production figures while Portugal, the Czech Republic and Hungary will publish final third-quarter economic growth data. In the U.S., the Labor Department will say nonfarm payrolls rose by 85,000 workers last month, the smallest gain since June, and the jobless rate held at 7.9 percent, according to the median estimates in Bloomberg News surveys.
The improvement in China’s domestic economy builds on a recovery that emerged in September data when growth in output, retail sales and investment accelerated. The November reading of an official manufacturing purchasing managers’ index, released Dec. 1, rose to its highest level in seven months and a separate gauge from HSBC Holdings Plc and Markit Economics rose above the 50 mark that divides expansion from contraction for the first time in 13 months.
At the same time, the official PMI’s sub-index for small companies declined to 46.1 in November from 47.2 in October, extending a contraction that began in April.
“The recovery is unbalanced,” London-based Mark Williams and Wang Qinwei at Capital Economics Ltd., wrote in a Dec. 3 note. “It is a concern that the small and medium-sized firms that account for two thirds of industrial output and a larger share of the economy are not participating in the recovery.”
The National Development and Reform Commission last month announced it approved metro and railway projects with a total investment of 75.2 billion yuan ($12.1 billion). The planning agency in September published a slew of infrastructure approvals that Nomura Holdings Inc. estimates had a combined value of about 1 trillion yuan.
Since the first announcements on Sept. 5, China CNR shares jumped 31 percent and CSR Corp., its larger rival, gained 27 percent as of yesterday. Over the same period, the Shanghai Composite Index dropped 0.4 percent.
Smaller companies haven’t seen “obvious benefits” from government policies aimed at supporting them, according to Li Zibin, president of the China Association of Small and Medium-sized Enterprises, citing a survey of 2,500 businesses.
An index designed by the Beijing-based body to track the performance of smaller companies has declined for 10 consecutive quarters through September 2012, Li, a former vice chairman at the NDRC, said in a Nov. 29 statement on the association’s website.
Sales at Lishui Xinyite Automatic Technology Co., a producer of machinery components, have fallen 20 percent this year, according to Xu Lipeng, a sales director at the Zhejiang-based company. Profit margins are also dropping as buyers demand lower prices and workers’ pay is rising, he said in a telephone interview.
“We’re lucky we’re still profitable, unlike some companies around us that have already scaled down production or gone bust,” Xu said. “We are feeling the chill and haven’t seen any sign of improvement yet.”
Smaller companies’ lack of responsiveness to recent policy stimulus “adds to the impression that the economic recovery is unlikely to be strong or last long,” Capital Economics’ Wang said in a telephone interview. “We expect growth to start slowing late next year.”
--Zheng Lifei. With assistance from Ailing Tan in Singapore. Editors: Nerys Avery, James Mayger
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