This was well signposted in advance. I sent out several cases of economic collapse and riots in China last year notably Ambrose Evans-Pritchard’s postings
1.. “Protectionist dominoes are beginning to tumble across the world The riots have begun. Civil protest is breaking out in cities across Russia, China, and beyond” [My “Deflation? What deflation?” 22/12/08] and
2. [My] “The Global Slump of 2008-09 is under way” sent on 15 MAY 08 which included “China has hit the buffers. With inflation at 8.5pc, it risks political turmoil. Moreover, it has repeated Japan's mistakes in the 1980s, building too many factories shipping too many goods at slender margins into a crumbling export market.
Lehman Brothers' Sun Mingchun says China will tip over in the second half of this year. "With so much latent overcapacity, an export-led slowdown could trigger a chain reaction which, in the worst case, could threaten the stability of [its] financial and economic system," he said.”
China is, indeed, the wild card in the global picture. In the boom years it shipped vast quantities of goods to the USA and the proceedsform a vast hoard of US dollars held in China. What they do with these if things turn nasty at home is the stuff nightmares are made of!
THE TIMES 3.1.09
Fire dies under China’s once booming manufacturing industry
Leo Lewis, Asia Business Correspondent
China’s vast manufacturing sector, the driving force behind the country’s celebrated economic growth story, is on the brink of technical recession as order books run dry and once humming factories fall silent.
The bleak snapshot of business conditions, which may herald yet more shrinkage in China’s growth prospects this year, arrived yesterday via the manufacturing purchasing managers’ index (PMI), a survey produced by CLSA, the Hong Kong brokerage.
Widely scrutinised by markets, the monthly report is considered by many investors to be one of the most useful leading indicators for the Chinese economy. Over the past 12 weeks it has painted a far more rapidly worsening picture than anyone predicted and now highlights China’s unexpectedly high vulnerability to the global financial crisis.
Eric Fishwick, CLSA’s chief economist, who compiled the PMI report, said that China’s manufacturing activity was very weak last month. “Output contracted at a record pace, employment fell for the fifth month and work in hand declined.” he said. “With five back-to-back PMIs signalling contraction, the manufacturing sector, which accounts for 43 per cent of the Chinese economy, is close to technical recession.”
Although the main PMI index rose slightly in December from its record low in November, the reading of 41.2 means that the CLSA index remains far below the levels once considered normal. A reading below 50 means conditions are worsening: the accompanying manufacturing output index plunged to 38.6, marking the sharpest drop since the survey began. The Chinese Government’s own PMI for December is due to be published tomorrow, and analysts believe that it is likely to show similar pessimism throughout the manufacturing sector.
The worsening meltdown spells yet more misery for Beijing as the Government battles to restore stable growth. Many believe that the Communist Party’s political legitimacy depends heavily on its ability to ride out the storm with the economy still behaving like a fast-growing emerging market. That may prove a tough act to pull off, Mr Fishwick said. Despite the size of the economy and the pace of its recent expansion, it remains fundamentally outward-looking and has been hit hard by the sharp drop-off in exports to both big consumers, such as the United States, and smaller Asian markets, which once provided steady demand.
In November, Beijing announced a gargantuan $586 billion (£404 billion) economic stimulus package involving huge public works spending. One commentator likened it to “trying to head off a speedboat with a supertanker”.
Particularly unsettling for Beijing, according to political and financial analysts, has been the greatly increased rate of job losses in the manufacturing heartlands. The Government’s efforts to craft a strong policy response to the crisis and cushion growth from the turmoil beyond its borders have been somewhat undermined by the images of hundreds of workers arriving at factory gates to find only a handwritten sign informing them that the plant has been closed.
Senior economists have reduced sharply their Chinese growth estimates as business conditions have turned brutal, although some say that they may be forced to make more downward revisions if January brings more sackings and factory closures and continuing decline in exports.
The new-year alarm bells come as even the most bullish observers now acknowledge another grim possibility — that growth in emerging markets around the world could turn out to be one of 2009’s bigger casualties. Private sector analysts are forecasting economic contraction for at least half a dozen Asian countries this year.
EUREFERENDUM Blog 3.1.08 [Condensed]
This blog has been pretty consistent in maintaining that the Chinese "economic miracle" is not all that it has seemed and that the country, economically and politically, has been on the brink for some time.
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And the signs are indeed bleak. Output has contracted at a record pace, employment fell for the fifth month and work in hand has declined. Five back-to-back PMIs are signalling contraction. The manufacturing sector, which accounts for 43 percent of the Chinese economy, is close to technical recession.
The political implications are also bleak. The Communist Party's political legitimacy depends heavily on its ability to maintain improving economic conditions and is, in a sense, hostage to its huge populations which, prone to rioting, could tear the government apart.
Even then, we do not have the first idea of what is happening in the agricultural sector, or the outlying provincial towns, but it takes little imagination to work out that, if the major industrial centres are having hard times, there must be knock-on effects right through the country.
The bad weather last year did not help, when heavy snow and rain - the worst in five decades - hit southern China in January and February 2008, resulting in deaths, structural collapses, blackouts, accidents, transport problems and livestock and crop losses in 19 provinces.
Already bad weather had come to southern China and a repeat of the winter conditions experienced last year could add further stress to the political and economic systems.
Where this will all lead is anyone's guess. China is now part of the wider global economy but no one can predict how its government will react if its seriously threatened by internal dissent and unrest. The country is, in a sense, the wild card in a pack that already has too many jokers.
Posted by Richard North