China’s domestic demand firming?

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As I’ve said for a very long time, the last thing we need is a billion new consumers in the world competing for resources.

But by failing to unilaterally sustain domestic demand at a time when the rest of the world wants to export to us, we are causing exactly that to happen.

It’s still not too late as China remains leveraged to exports, but that will change if that channel remains closed.

China Manufacturing Index Rises on Stimulus Spending

by Li Yanping and Nipa Piboontanasawat

Mar 4 (Bloomberg) — A Chinese manufacturing index climbed for a third month, adding to evidence that a 4 trillion yuan ($585 billion) stimulus package is pushing the world’s third-biggest economy closer to a recovery.

The Purchasing Manager’s Index rose to a seasonally adjusted 49 in February from 45.3 in January, the China Federation of Logistics and Purchasing said today in an e-mailed statement. A reading below 50 indicates a contraction.

Stocks rose after output and new orders expanded for the first time in five months. Chinese Premier Wen Jiabao may announce extra measures to reverse the nation’s economic slide at the annual meeting of the National People’s Congress starting in Beijing tomorrow.

“There are more noticeable signs that China’s economy is bottoming out,” said Zhang Liqun, an economist at the State Council Development and Research Center.

The Shanghai Composite Index rose 2.4 percent as of 10:47 a.m. local time.

While manufacturing contracted for a fifth straight month as the worst financial crisis since the Great Depression cut exports, the PMI is up from a record low of 38.8 in November.

Surging loans, growth in retail sales in January, and an increase in electricity output and consumption from the middle of last month are signs that government measures have shown “preliminary results,” according to Premier Wen.

Recovery ‘Very Likely’

A recovery in the first half is “very likely,” central bank Vice Governor Su Ning said yesterday.

Industrial-output growth in January and February may be higher than in November and December, Zhang forecast. Still, he cautioned that “seasonal factors” may have boosted the output and new-order indexes, which could fall again.

“The government’s stimulus investment has finally started to take effect,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “However, a recovery may be short-lived as export demand may get worse in the second half and the outlook for consumption is uncertain.”

The manufacturing index likely got a boost from factories resuming production after a Chinese Lunar New Year holiday in January, Xing said.

The output index jumped to 51.2 from 45.5 in January and the new-order index climbed to 50.4 from 45.

Export Orders

A measure of export orders rose to 43.4 from 33.7. The employment index rose to 46.1 from 43, the first increase in six months.

The premier may unveil a record 950 billion yuan budget deficit for this year to cover government spending on the economy and welfare, according to the China Business Journal and Wen Wei Po newspapers.

The slowdown has triggered speculation that the government will increase the stimulus package announced in November. An unidentified planning-agency official said today that more will be spent, Reuters reported.

Officials have indicated 8-10 trillion yuan of “government-sponsored investment” is possible, Stephen Green, Shanghai-based head of China research at Standard Chartered Bank Plc said yesterday.

A separate purchasing managers’ index, released on March 2 by CLSA Asia-Pacific Markets, showed manufacturing contracted for a seventh month in February.

“Manufacturing activities may only start to recover from March after more projects break ground in spring,” said Sun Mingchun, an economist at Nomura Holdings Ltd. in Hong Kong. “Economic growth may start to pick up from the second quarter onwards.”

Steel Glut

A glut of steel at ports in China, the world’s biggest maker of the alloy, shows mills were too quick to boost output on expectations the stimulus package unveiled in November would spur demand, according to Bank of Nova Scotia.

Steel stockpiles at Shanghai’s main port have jumped 44 percent this year to 2.1 million metric tons on Feb. 27, the highest since Bloomberg began compiling the data in June 2006.

While China’s economy is the only one of the world’s five biggest still expanding, the pace has slowed for six straight quarters. Growth in the three months through December was 6.8 percent from a year earlier, the smallest gain in seven years. That compares with a 13 percent expansion for all of 2007.

Tongling Nonferrous Metals Group Co., China’s second- biggest copper smelter by output, said Feb. 27 that profit tumbled last year after prices slumped in the fourth quarter.

Lenovo Group Ltd., the world’s fourth-biggest personal- computer maker, said Feb. 25 that it will cut 450 jobs in China to reduce costs after demand fell in the U.S. and China.

20 Million Jobs

China’s government said last month that 20 million migrant workers had lost their jobs because of the slowdown.

Jia Qinglin, a member of the Communist Party’s Politburo, urged a “vigorous employment policy” in his speech yesterday at the opening meeting of the Chinese People’s Political Consultative Conference.

“China will pick up in the second half of this year as the stimulus package” begins working, Vivek Tulpule, the chief economist at London-based Rio Tinto Group, said yesterday in Canberra, Australia. Rio is the world’s third-biggest mining company.


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