China recovery hopes gather pace - Picture mixed elsewhere in Asia-Pacific

China recovery hopes gather pace - Picture mixed elsewhere in Asia-Pacific
Copyright The Financial Times Limited 2009
Published: July 1 2009 01:53 | Last updated: July 1 2009 16:51
http://www.ft.com/cms/s/0/ea0b4e52-65d8-11de-8e34-00144feabdc0.html


China’s two widely watched manufacturing and business activity indices both finished in positive territory in June, confirming that the world’s third largest economy is continuing to expand amidst a mixed picture elsewhere in Asia.

India’s manufacturers have also stepped up production, leading to a slight pick up in manufacturing employment in June and the first rise in factory gate prices in eight months since a sharp downturn began in late 2008.

Japan and Australia, the region’s largest and fourth biggest economies respectively, are displaying tentative signs that the worst of the economic downturn may soon be behind them, according to surveys of their companies, but no hint of a robust bounce-back.

The various surveys measuring business activity in China, India, Japan, Australia and Hong Kong, all released on Wednesday, are being closely watched for signs that Asia could help lead the developed world out if its deep recession.

Sentiment among big Japanese manufacturers has improved since the first three months of the year, the Bank of Japan’s quarterly Tankan survey showed on Wednesday, but continued widespread gloom and plans to slash investment underscore the fragility of any recovery.

In Australia, manufacturing activity weakened further in June, although the pace of decline eased slightly. June marked the 13th consecutive month that the Australian index was below the 50-point level, the mark separating growth from shrinkage.

The Chinese indices, one produced by CLSA, the investment bank, and the second by Chinese government agencies, have now recorded an increase in output for at least four months in succession.

The positive expansion recorded by the indices provides further evidence that Beijing’s Rmb4,000bn stimulus package, buttressed by a surge in bank lending and a series of tax breaks, is having a substantial impact in the real economy.

“We take this as a signal that the green shoots of economic recovery have taken root and are likely to blossom in the second half of the year,” Morgan Stanley’s Chinese economy research team wrote.

Andy Rothman, China analyst for CLSA, pointed out that new export orders, after rising for seven straight months, had finally broke into expansion territory in June. “This improvement in the export orders index is consistent with the ‘Wal-Mart effect’ we have been writing about, and is why we are less pessimistic than most about Chinese export prospects for this year,” he said.

The pick up in exports has yet to flow through firmly to Hong Kong, where the latest purchasing managers index showed that business activity is still contracting, although the pace of reduction is easing.

In an interview with the FT on Tuesday, Kaoru Yosano, Japan’s finance minister, said that Japan had passed the worst of its current slump, but that its recovery could still be hit by ”many kinds” of possible negative factors. He cited in particular uncertainty about whether the US and Europe had truly resolved the problems in their financial sectors.

The Tankan’s headline index for the mood of large manufacturers – which suffered a record fall to a new low of minus 58 in March – recovered to a less dramatic minus 48 in June, the BoJ said. It was the survey’s first rise in more than two years.

However, the sentiment diffusion index – which showed most large manufacturers were finding business conditions “unfavourable” – was still lower than many economists tracking the survey had expected.

Large manufacturers also forecast a 24.3 per cent cut in fixed investment for the year from April 1, highlighting the impact on corporate spending of the huge surplus capacity created by a collapse in demand for exports late last year.

Still, big manufacturers expected conditions to continue to improve, with September’s headline sentiment index forecast to be minus 30.

Reporting by Richard McGregor in Beijing, Mure Dickie in Tokyo, Justine Lau in Hong Kong, Elizabeth Fry in Sydney and Amy Kazmin in New Delhi