Data show rebalancing, not weakness: economist

Updated: 2014-02-05 11:54

By Michael Barris in New York (China Daily USA)

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A manufacturing slowdown in China rings an "alarm" but it is part of the "painful" restructuring of the country's economy, an economist with a US think-tank said.

"It tells us that economic recovery, the manufacturing recovery is probably not as strong as we had expected," Yingying Xu, an economist with the Manufacturers Alliance for Productivity and Innovation in Virginia, said in an interview. "But I wouldn't say that one month's data is strong enough to change our expectation for 2014."

Data released Saturday showed January growth in China's manufacturing sector hit a six-month low, while its service sector expanded at its slowest pace in five years. Coming on the heels of Thursday's report that US manufacturing grew last month, although not as much as it had in December, the data inflated fears of a slowdown in the global economy and ultimately drove US and European investors away from emerging markets and into US Treasurys and other so-called safe assets.

On Monday, Wall Street had its worst day of the year, with share prices hitting nearly four-month lows. Markets in China and other regions of Asia were closed in observance of the Lunar New Year holiday. By Tuesday, the jitters over emerging markets had faded somewhat and US stock prices rose. The yen and US and German government debt prices fell. Renewed bids for US equities bolstered the dollar and oil and pared demand for gold.

Xu said the half-point drop in the Chinese Purchasing Managers' Index (PMI) to 50.5 last month from 51 in December, was an example of what lies ahead for China in the next several years as it rebalances its economy to consumption and services from export and investment. Numbers above 50 signal expansion.

"It's not an excuse. The structure change is very painful and a long process," the economist said. "It is not going to happen overnight. If reform is implemented successfully, that may take at least three to five years."

Fourth-quarter GDP in China fell to 7.7 percent from 7.8 percent in the prior quarter, remaining above the Chinese government's 7.5 percent annual target. Xu said she doubts China will see double-digit GDP growth for "at least another three to five years" due to the economic restructuring. Six to seven percent is "probably a more sustainable growth pace for China", she said.

"The economic recovery in the second half of 2013 was mostly supported by government policies," Xu said. "The Chinese leaders have indicated stronger tolerance for slow growth in the near future."

Some analysts attributed China's weaker purchasing managers data to the timing of Chinese New Year. Xu rejected that view, saying that Indonesia, South Korea and other emerging markets observing the Lunar New Year did not experience manufacturing production issues during the period.

Regarding the US results - the US Manufacturing PMI fell to 53.7 in January from an 11-month high of 55.0 in December - Xu said "we probably just have to wait a little to see if this really indicates a real economic slowdown and a real manufacturing slowdown". Some firms have attributed the slower pace of growth in the US last month to extremely cold weather.

(China Daily USA 02/05/2014 page1)