- November 1, 2008, 2.39 pm (Singapore time)
China to be hit hard by global recession: BOC exec
SHANGHAI - A global recession will have a huge impact on China's economy while currency volatility is expected to add further pressure on the country's banks, a top executive at Bank of China (BOC) said on Saturday.
'Next year, the global economy is very likely to enter recession and the world's biggest economies, including the United States, Europe and Japan, are very likely to post negative growth and that will have a huge impact on China,' executive vice president Zhu Min told a financial conference in Shanghai.
'The impact of the crisis on China has just started to appear as China has already seen a sharp slowdown in industrial profit growth and fiscal income,' he said.
'The financial crisis will technically precede economic and political turmoil by eight to 12 months,' he added.
China's banks have enjoyed robust profits for years as the country boomed but earnings growth is now slowing as the economy cools from the impact of the global financial crisis.
Although China's banks have manageable holdings of sub-prime-mortgage-related debt, they are exposed to huge foreign currency trading risk from turbulent financial markets.
'The uncertainties in the world's currency markets have exposed the Chinese banking sector to higher foreign asset risk,' Mr Zhu said.
BOC, the country's flagship foreign exchange lender, said on Wednesday profit growth slowed to 12 per cent during the third quarter, from 43 per cent in the first half.
The lender had US$6.2 billion worth of debt issued by troubled US mortgage companies Freddie Mac and Fannie Mae by the end of September, and was carrying US$3.3 billion of sub-prime-related securities.
Mr Zhu said several factors will hurt the banking sector's bottom line such as the possible deterioration of banks' asset quality as economic growth slows, and shrinking interest margins due to the global trend of interest rate cuts.
He expects the industry to face tougher regulations and supervision of derivative products in future.
BOC's focus on trade finance loans means rapidly slowing world demand for Chinese goods will put additional pressure on the lender's loan growth and asset quality, Deutsche Bank said in a recent report.
China's economy grew 11.9 per cent in 2007, but that rate slowed to 9.9 per cent in the first three quarters of this year.
China's manufacturing sector contracted sharply in October, an official monthly survey showed on Saturday, providing more evidence the global financial crisis was taking a toll on the once roaring Chinese economy.
Source: http://www.businesstimes.com.sg/sub/latest/story/0,4574,303766,00.html?
Is there any substance to such view?
How about the following news article on Bloomberg.
- China Manufacturing Contracts as Crisis Trims Exports
By Li Yanping and Wang Ying
Nov. 1 (Bloomberg) -- China's manufacturing contracted as the worst financial crisis since the Great Depression eroded export demand.
The Purchasing Managers' Index fell to a seasonally adjusted 44.6 last month from 51.2 in September, the China Federation of Logistics and Purchasing said today in an e-mailed statement. That was the lowest since the gauge was launched in July 2005. A reading below 50 reflects a contraction, above 50 an expansion.
China's cabinet has pledged extra infrastructure spending to stimulate the world's fourth-biggest economy amid the global slowdown. The government has already lowered rates three times in the past two months, increased export rebates and cut property transaction taxes.
``The government needs effective stimulus measures to spur growth,'' said Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co. ``The external economic outlook is worsening rapidly.''
Manufacturing contracted in July for the first time since the survey began in 2005. It also shrank in August. The October index was a record low.
China's economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned. The expansion cooled for a fifth straight quarter, to a 9 percent gain from a year earlier.
Global Slowdown
Chinalco Luoyang Copper Co., a Chinese processor of the metal, said orders fell 20 percent in the third quarter as domestic and international demand weakened.
The global slowdown is curbing demand for the nation's goods. The International Monetary Fund estimates that advanced economies will expand 0.5 percent next year, the slowest pace since 1982.
Falling property sales and prices in major cities are another drag on China's growth.
The index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobiles and electronics.
The output index fell to 44.3 in October from 54.6 in September, while the index of new orders dropped to 41.7 percent from 51.3. The index of export orders declined to 41.4 percent from 48.8, the statement said.
The inventory index climbed to 51.4 from 50.5, it said.
Source: http://www.bloomberg.com/apps/news?pid=20601089&sid=asxpXKBhstjU&refer=china
On an another article posted on NewYorkTimes.
- China has long been at the center of claims that the world could keep growing regardless of American troubles. China has been importing cotton from India and the United States; electronics components from South Korea, Malaysia and Taiwan; timber from Russia and Africa; and oil from the Middle East.
But many of the finished goods China produces with these materials have ultimately landed in the United States, Europe and Japan. When consumers pull back in those countries, Chinese factories feel the impact, along with their suppliers around the globe.
Fewer laptop computers shipped from China spells less demand for chips. Last week, Toshiba — Japan’s largest chip maker — said it lost $275 million from July to September, blaming its troubles on a world glut.
Lower demand for flat-screen televisions means less need for flat-panel glass displays. This month, Samsung, the Korean electronics giant, said a global oversupply in that item caused its biggest dip in quarterly profits in three years.
Now, a glut of products may be building in the United States. Orders for trucks used by business have plummeted. Investments in industrial equipment are declining. Yet inventories have grown.
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