China facing bigger economic downside risk
27 November 2008
The downside risk to China's economy is increasing, and some economic indicators deteriorated in November, said China's top economic planner on Thursday.
Deepening economic woes worldwide are casting a larger shadow on China, once the world's fastest growing major economy. Some major economic indicators have shown evident signs of worsening since the beginning of November, Zhang Ping, minister of the National Development and Reform Commission (NDRC) said during a press conference in Beijing.
Although Zhang did not detail those indicators, analysts said they include the gross domestic product (GDP), exports, capital investments, and the consumer price index (CPI).
China's GDP slowed to 9 percent in the July-September period, down from 9.9 percent in the second quarter. Many economists predict that the growth for the last quarter of 2008 could tumble to as low as 6 percent.
The worst has yet to come as the global financial crisis has not bottomed out, Zhang said.
Chinese enterprises, especially those export-oriented businesses, are experiencing growing difficulties, with some having been forced to halt or reduce production. "Without doubt, the situation will hurt employment," he said. Some workers have chosen to go back to their rural homes as the employers have shun down factories, he added.
With such a grave situation, China will continue to implement "strong and effective" fiscal and monetary instruments to check the slowing pattern, and yesterday's 108-percentage-points interest rate cut is one of the measures, Zhang said.
On Wednesday, China's central bank announced a massive cut of the benchmark interest rate by 1.08 percentage points, as part of the intensified moves to further stimulate domestic demand, and to give substantial support to enterprises, especially enterprises affected by worsening exporting circumstances.
(China Daily November 27, 2008)
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27 November 2008
The Straits Times
Nov 27, 2008 | 2:34 PM
China's downturn deepens
CHINA warned on Thursday its economic downturn was deepening with the spread of the global financial crisis, raising the spectre of job losses and social unrest in the world's most populous nation.
The warnings from the country's top planner came a day after China's central bank slashed interest rates by the biggest margin in 11 years to shield its economy from the worst global downturn in decades.
The crisis that began last year with the collapse of the US housing market spread around the world, bringing several top financial institutions to their knees and pushing the United States, Japan and Europe into recession or to the brink of it.
China's economy, the world's fourth biggest, is still expanding, but the growth engine is sputtering, hit by a sharp drop in demand for its exports. This quarter is expected to be its worst in three years.
'The global financial crisis has not bottomed out yet. The impact is spreading globally and deepening in China. Some domestic economic indicators point to an accelerated slowdown in November,' Mr Zhang Ping, chairman of the National Development and Reform Commission, told a news conference.
The State Information Centre, a government think-tank, forecast annual growth would slow to eight per cent this quarter from nine per cent in the third quarter, still a respectable figure but a far cry from blistering double-digit growth rates recorded in the past five years.
With factories closing by the thousands, Chinese officials have grown increasingly concerned in recent weeks that slowing growth may threaten the stability that the ruling Communist party craves for its 1.3 billion people.
'Excessive bankruptcies and production cuts will lead to massive unemployment and stir social unrest,' Mr Zhang warned.
He said Wednesday's 108 basis point rate cut would reinforce the impact of the government's 4 trillion yuan stimulus package unveiled on Nov 9.
The package that aims to boost domestic demand over the next two years and offset the slump in exports, should boost growth by about 1 percentage point each year, he said.
Asia stocks rise
China's unexpectedly big rate cut helped Asian stock markets chalk up a fifth gain in a row, even as India, Asia's other new economic power, was shaken by militant attacks in the financial capital Mumbai that killed at least 100 people.
US markets are closed for Thanksgiving on Thursday after a rare four-day gaining streak in the S&P 500 stocks index.
In a sign how essential was China's success for the rest of the world, top global miner BHP Billiton cited a drop in China's demand for iron ore when it painted a gloomy outlook for its business and defended its decision to drop a US$66 billion (S$99.8 billion) bid for rival Rio Tinto.
Aggressive interest rate cuts and trillions of dollars in financial sector bailouts and stimulus packages have been the order of the day since the financial crisis culminated with the collapse of Lehman Brothers in September, freezing lending and spreading the pain to consumers and businesses.
South Korea, which has already pledged more than US$150 billion in debt guarantees, financial sector aid, tax cuts and extra spending, on Thursday offered to do more to shield Asia's fourth-biggest economy from global headwinds.
The government plans to buy bad debt from banks and said it would also tap a US$30 billion swap line with the US Federal Reserve to supply scarce dollars.
On Wednesday, the European Commission called for an EU-wide fiscal stimulus worth 200 billion euros (US$260 billion) in an attempt to stave off recession in the 27-nation bloc.
National packages already announced by countries including Germany, Britain, Spain, the Netherlands and Hungary amount for about half of the total, raising questions over how much of a boost it will really give the EU economy.
European Central Bank policymakers made plain that the ECB was ready to do its part and cut interest rates again.
ECB governing council members Christian Noyer and Axel Weber said there was room for lower rates given an expected drop in euro zone inflation below the bank's two per cent target next year. ECB President Jean-Claude Trichet was more cautious but also left the door open for another rate cut at the Dec 4 policy meeting in Brussels.
Analysts polled by Reuters expect the ECB to cut its benchmark rate by another half a point to 2.75 per cent, its lowest in more than two years.
Earlier this week the Fed unveiled a US$800 billion plan to buy mortgage-related debt and back consumer loans, bringing the total potential rescue bill to as much as US$8.3 trillion, more than half of the US gross domestic product.
Grim data
The moves come against the backdrop of a steady flow of grim economic data and corporate profit warnings and amid market anxiety whether and when the rescue efforts would lure consumers, now gripped by fear for their jobs, back to shops.
On Wednesday, data showed US consumer spending fell at the steepest rate in more than seven years in October and durable goods orders tumbled at twice the rate economists expected.
In Europe, euro zone business and consumer sentiment surveys due later on Thursday are expect to show a worsening of economic and business conditions in the 15-member single currency area.
In yet another sign that no one is spared the pain, Japanese electronics maker Panasonic Corp is likely to cut its annual operating profit forecast by a third, according to a source familiar with a matter. -- REUTERS
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