China's Path to Stability

by: Tom Lydon December 02, 2008 | about stocks: FXI / PGJ    
Tom Lydon

Tom Lydon

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China’s economy is supported by exports, and the recent slowdown in the global economy has frozen their investments and ETFs.

The factory orders are at the lowest levels seen since the government began measuring them, causing a chain reaction of laid off workers and the need for a massive stimulus package. Most of China’s customers are overseas, such as in the United States, and many economies are cutting exports, leaving China’s exports with no place to go.

Scott Tong on Marketplace reports that the economic stability in China goes along with social stability and officials and leaders are looking at protests and angry laid-off factory workers smashing windows and overturning police cars.

So far, Beijing has responded by pledging subsidies to rural residents and slashing interest rates. The government has responded elsewhere by removing price controls on items such as grains, oil and meat, reports Terence Poon for The Wall Street Journal.

The shift has gone from inflation toward growth, and Beijing is leading the way. If these pro-growth policies stick, perhaps China will get the kick it needs to keep moving forward.

The China Federation of Logistics and Purchasing said Monday its Purchasing Managers Index for China fell to the lowest level since the index started in 2005, with November PMI at 38.8. A reading above 50 means expansion and a reading below 50 means contraction for the economy.

A slowdown in the domestic property market is also hurting China’s growth, and Chinese manufacturing is the most threatened, as cuts in production equal cuts in employment.

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This article has 5 comments:

  •  
    Dec 02 03:44 PM
    so what was the good news again? they are loosing their markets. they don't seem to know how to create domestic ones, the only way they seem to know how to generate economic activity is by pushing down their currency, but that only helps if some one else is growing. which is not the case any more. and growing that domestic market is the only real way to stability.
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  •  
    Dec 02 06:45 PM
    huh, path to stabilty? More like continued path to more instabilty. If this was supposed to be a positive artcle, its one of the dumbest Ive ever read.
    Reply | Link to Comment
  •  
    Dec 02 07:47 PM
    The title seemingly could have been better written. I think what the author is trying to say here is that China's path to stability lies in transforming itself from an export driven economy to one more balanced by domestic consumption. The recently announced stimulus plan is likey the first of many initiatives designed to reduce China's dependence on export markets and better diversify its GDP.
    Reply | Link to Comment
  •  
    Dec 02 11:23 PM
    Ah! So! jepettiman. I recognize the tenor of your comments! A wise man said; "He who hides behind a mask shall be exposed by his words!"

    jegan ;-)
    Reply | Link to Comment
  •  
    Dec 03 12:54 AM
    charts look like china is stabilizing. good action today as well. FXI needs to break 28 for uptrend to start.
    kevin
    bullinachinamarket.com
    Reply | Link to Comment
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