CHINA FACTORIES & SUPPLY CHAINS

Changes ahead for suppliers and supply chains?

Cooling economy puts strain on China factories

Friday, January 02, 2015

China's factory activity sputtered in December, underlining the challenges facing the country's manufacturers as they fight rising costs and softening demand in a cooling economy.
After a rough 2014, the world's second-largest economy was looking set to start the year on a weak note. That reinforced expectations that Beijing will roll out more stimulus measures to avert a sharper slowdown, which could trigger job losses and debt defaults. The official Purchasing Managers' Index slipped to 50.1 in December from November's 50.3, new government data has revealed. It was the lowest level of the year, clinging just above the 50-point level that separates growth from contraction on a monthly basis. "This indicates that industrial growth is still in a downward trend, but the pace [of decline] is slowing," said Zhang Liqun, an economist at the Development Research Centre.
"The current economic situation is in the process of returning to stability from slowing down," he added. A similar private survey on Wednesday showed activity shrank for the first time in seven months in December. That survey focuses on smaller companies. And they are facing greater strains notably higher financing costs and problems getting loans. The official survey looks more at larger, state-owned firms, which have been more resilient to the protracted downturn. That, of course, is due partly to generous government subsidies and better access to credit. "We believe that investment in the manufacturing sector will only see single-digit growth this year compared with 13 percent in 2014," economists at ANZ said in a research note. But some hopeful signs emerged. Growth in China's services sector, which accounts for close to half of the economy, remains robust even though firms are still shedding jobs. The official non- manufacturing PMI, rose to 54.1 in December from November's 53.9. Export demand may be bottoming out, with a stronger US economy helping to offset weakness in Europe and Japan. An index for new orders a proxy for foreign and domestic demand retreated to 50.4 in December from November's 50.9. But new export orders shrank at a slower rate, climbing to 49.1 in December from 48.4 in November. REUTERS