Anecdotal reports that small businesses in China were suffering, with consumers feeling jittery, seem to be reflected in the country’s Purchasing Manager’s Index (PMI). November’s flash figures showed that China’s PMI, which had bounced in September and was stable in October at 51, fell sharply to 48 in November - a 32-month low.
So, why is this? Firstly, Chinese infrastructure projects are easing slightly. As an economy expands it is more difficult to insulate it from the external influences. Manufacturers who service European (and US) consumers with lower cost goods are suffering, as their western customers are squeezed and their spending falls.
Secondly, Europe has been hit by a massive loss of confidence. As the world is now more of a global village than ever, Europe’s troubles have had a direct effect on the Chinese stock markets, which have plummeted 20% since April. Unlike 2008, when China and India hardly missed a beat, the 2011 wobbles in one part of the village seem to be having an impact all round town, despite China’s continued, impressive 8% annual growth.
Fortunately, the US PMI is still in positive territory for October and evidence of growth is starting to appear. Tractor manufacturer, John Deere, for example produced a strong result and optimistic forecasts. By contrast, the results from BYD, China’s battery manufacturer in which the famous US investor Warren Buffet recently invested, has led to expectations of a second round of layoffs as sales of the electric cars and batteries have not evolved as fast as predicted.
In the long run, we must hope that they will pull through. However, the example of the global Solar panel industry suffering from collapsing unit prices is an object lesson in the risk of investing in “sure thing” environmentally-driven activities. Of course, the winner in this case is the consumer, who will be paying less for their heating and power, while the investors and manufacturers are left to count the cost.
Eventually, all of the current drama will have an impact on the global energy balance, a factor not necessarily considered by the World Bank in their study anticipating a 2015 crunch.
Meanwhile, we are delighted to announce that OATS is putting the final touches to its new China website to complement the OATS global site. China Bulletin new items will shortly be available on the new site and we’ll let you know as soon as it’s launched. In the meantime, as always, if you have any feedback, ideas or possible content we would be delighted to receive it. Simply contact Diana Shen at dshen@oats.co.uk.