• Thu
  • Dec 18, 2014
  • Updated: 5:55am

China firms face fresh credit, export crunch

Latest HSBC preliminary figures show manufacturing running at nine-month low

PUBLISHED : Thursday, 20 June, 2013, 10:02am
UPDATED : Friday, 21 June, 2013, 2:35am

Concerns are growing that China's export-oriented manufacturers are facing a credit squeeze that puts an already flagging economic recovery at risk of further decline.

A spike in interbank lending costs threatens to spill over into real financing costs for businesses, analysts say, putting fresh pressure on profits of already struggling private sector manufacturers.

"If this situation carries on for two or three more months then there could be significant consequences for the real economy," Zhang Zhiwei, chief China economist at Nomura in Hong Kong, told the Post.

Mainland manufacturers ran production lines in June at their slowest pace in nine months, according to a so-called flash, or preliminary reading from the HSBC Purchasing Managers Index (PMI) yesterday. The survey tracks mainly small and medium-sized firms in the private sector. They are typically exporters and have suffered a prolonged downturn in demand.

China's export growth in May sank to a 10-month low of just 1 per cent, versus analyst expectations of 7.4 per cent.

Order book growth shrank in June as borrowing costs surged. Interbank rates - the wholesale rate at which banks lend - have risen sharply in recent weeks. The three-month Shanghai Interbank Offered Rate has leapt to 5.8 per cent from around 3.9 per cent in just two weeks.

Private sector firms borrow well above that rate.

China's external sector supports an estimated 200 million mainland jobs, making a downturn in exports a major risk for the leadership in Beijing, which is acutely sensitive to the risk of social instability arising from a rise in unemployment.

This is especially true as Premier Li Keqiang readies a series of structural economic reforms that could fuel inflation and hurt job prospects in the near term and requires relative tightness in monetary policy to be maintained.

RBS China economist Louis Kuijs said the fall in export orders revealed in the PMI was particularly pronounced, suggesting that a test of the government's reformist resolve could be looming.


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China is destined in the future to shift gradually from an export driven economy, to an economy that is more balanced. There are a lot of factors that will influence this shift. One factor is the desire of the Chinese worker for higher wages to afford more of what the Chinese economy produces. Another will be the rapid expansion of the additive manufacturing economy, including 3D printing, now in its infancy, which will drive production closer to the customer. This will shift some production in the Untied States and Europe closer to home, while benefiting China in the expansion of its internal markets. These changes will not happen without creating dislocations and stress on all existing economies including those of China and the United States. I do get the feeling that the leadership of China is quite aware of the coming changes, and is helping to prepare and soften, what would otherwise be a rough road ahead for the Chinese people. in some ways, I believe that the Chinese leadership has its sights set further ahead than the leadership of the United States, in this regard,


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