CullmanTimes.com - Cullman, Alabama

National News

November 20, 2012

INTERNATIONAL: China's economy recovering but torrid growth over

BEIJING — Zhang Hanzhong, who supplies locks for auto manufacturers, is part of a swath of China's economy that is lagging in a two-speed recovery.

Business for retailers, hotels, photo studios and other service industries is picking up as China limps out of its deepest slump since the 2008 global crisis. But exporters and manufacturers who drove its boom over the past decade are struggling.

Zhang's sales are down 20 percent with no rebound in sight, while labor costs are up.

"The second half of the year is even harder than the first half," said Zhang, who employs 60 people at his factory in Meizhou in Guangdong province near Hong Kong.

China is recovering but the days of double-digit growth are gone. Faced with falling returns from a three-decade-old growth model fueled by exports and investment, Beijing is trying to rebalance the economy by promoting consumer spending, service industries and technology. It is a strategy that promises smaller but more sustainable gains. That could have global repercussions by dampening voracious demand for iron ore, industrial equipment and other imports that drove growth for suppliers from Australia to Africa to Germany.

"The world has to get used to the idea that China will grow at a 7 or 8 percent pace, and growth will be far less investment-intensive over the next decade," said Mark Williams of Capital Economics. "So the projections for Chinese demand for commodities, capital goods, construction equipment and so on have to be revised down.'"

The Communist Party has committed in broad strokes to growth based on consumer spending and innovation in its five-year development plan that runs through 2015. A report in February by the World Bank and a Chinese Cabinet think tank said that to achieve that, the government will need to make politically daunting changes including curbing the dominance of state companies.

New leaders including General Secretary Xi Jinping who took power last week are under pressure to deliver on the party plans to overhaul the economy. But how far they will go to rein in politically favored state companies and other vested interests is unclear.

Growth slowed to a three-year low of 7.4 percent in the three months ending in September. That prompted concern the new leaders might feel compelled to boost spending on building bridges and other public works, setting back efforts to reduce reliance on investment. But retail sales and other indicators are improving, easing pressure for abrupt changes.

"The issue is how well they work together and whether they are able to overcome vested interests," said Williams. "We really won't know that until they've been in office for a little while."

This year's growth is explosive by Western standards but well below the 14.1 percent that China racked up in 2007 on its way to passing Japan as the second-largest economy in 2009.

Forecasters expected a Chinese recovery early this year. As the slump deepened, the International Monetary Fund and others cut growth forecasts for the year to below 8 percent — the weakest since the 1990s. Even after a recovery, they see it rising to only about 8.5 percent by 2014.

Beijing has yet to take many of the steps analysts say are required to achieve its goals, including pumping money into health and other social programs to free up household budgets for consumer spending. But the impact in some industries is clear.

A monthly survey by HSBC Corp. of Chinese service companies has shown activity expanding steadily for two years, while a parallel survey of manufacturers has shown activity contracting this year.

Already, retail spending is rising faster than overall growth as wages climb. In October, retail sales were up 14.5 percent over a year earlier.

In Huzhou, a city south of Shanghai in Zhejiang province, business is strong for entrepreneur's Li Yong bedding factory. It employs 10 people and doesn't bother to export because demand from Chinese customers is strong. Costs for labor, rent and materials up but so are sales.

"Our profits are up 10 percent this year from last year," Li said.

Li buys all his materials in China, highlighting another trend that could blunt the payoff for its trading partners. As local companies develop the ability to deliver more sophisticated goods and services, they are serving Chinese consumers from domestic resources, limiting demand for imported materials and technology.

"I will think about using imported materials in the future, but for now, both the customers and I cannot afford it," Li said.

China's slowdown was due largely to government controls imposed to cool an overheated economy and inflation following its quick, stimulus-fueled rebound from the 2008 crisis.

At the same time, steelmakers and other heavy industry was under pressure from a government campaign to cut pollution and energy use by closing older facilities. Construction, a major source of jobs, was battered by a clampdown on land sales and building cool surging housing prices and stop speculation-driven investment.

Easing building curbs would be a quick way to generate jobs, but communist leaders resisted pleas from developers even as growth drifted lower, worried about setting back their rebalancing plans. Instead, the government is pushing companies to construct more low-cost housing, which the general public needs but that produces less profit and requires less imported steel for girders and copper for wiring.

Weaker manufacturing and construction activity already have cut China's demand for foreign goods. Imports of steel products fell 39.9 percent in October from a year earlier. Copper imports were off 12.2 percent and those of raw wood were down 11.1 percent.

Government pressure to raise wages has put more money in consumers' pockets but is squeezing companies, especially in labor-intensive industries that employ millions of people making shoes, toys and other low-tech goods.

Chen Shuhai's 5-year-old wig factory is the sort of labor-intensive business that is being pushed out of China by higher costs.

Rent on his factory in Yiwu, a southern city famous for exporting buttons and other low-tech goods, doubled from 2009 to 2011. Monthly wages are up 10 percent this year to about 3,500 yuan ($550) for each of his 80 employees.

Chen said neighboring companies that exported to debt-crippled Europe have closed. Others are moving to Vietnam, India and other lower-wage markets.

"There is not much room left in China for the wig industry," Chen said. "I don't know what will happen to my factory."

Longer-term, the government's effort to create a consumer-driven economy might turn China into a market for tourism, insurance, health care and other service companies.

"The issue is whether it can do this smoothly, in which case growth can remain strong," said Williams. If it works, "over the next 10 years, it will be another group of economies that are able to ride China's coattails."

 

1
Text Only
National News
  • Fort Hood (UPDATED) Officials: 4 dead, including gunman, at Fort Hood

    A gunman opened fire Wednesday at Fort Hood in an attack that left four dead, including the shooter, law enforcement officials said.
    One of the officials, citing official internal U.S. Justice Department updates, said 14 others were hurt. The officials spoke on condition of anonymity because they were not authorized to release information by name.

    April 2, 2014 1 Photo

  • Consumer spending on health care jumps as Affordable Care Act takes hold

    Nancy Beigel has known since September that she would need hernia surgery. She couldn't afford it on her $11,000 yearly income until she became eligible for Medicaid in January through President Barack Obama's signature health care law.

    April 17, 2014

  • mfp file Hoffner Fired coach unjustly accused of visiting porn sites

    The president of Minnesota State University-Mankato accused a football coach of looking at Internet porn on a work computer before firing him, an arbitrator has revealed. The official said the claim could not be supported, and the coach shouldn't have been fired.

    April 11, 2014 1 Photo

  • High School Stabbings 4 students seriously hurt in Pa. school stabbings

    A student armed with a knife went on a stabbing and slashing spree at a high school near Pittsburgh on Wednesday morning, leaving as many as 20 people injured, including four students who suffered serious wounds, authorities said.

    April 9, 2014 2 Photos

  • Obit Ultimate Warrior Former pro wrestler Ultimate Warrior dies at 54

    James Hellwig, better known as former pro wrestler The Ultimate Warrior, has died, the WWE said. He was 54.

    April 9, 2014 1 Photo

  • news_amazonfiretv.jpg Amazon introduces Fire TV to challenge Apple in living rooms

    Amazon.com Chief Executive Officer Jeff Bezos is stepping up efforts to win over customers in their living rooms with a $99 TV box for watching digitally delivered shows and movies, challenging Apple's TV device.

    April 3, 2014 1 Photo

  • Washington Mudslide Death toll in Washington mudslide rises to 30

    As medical examiners painstakingly piece together the identities and lives of the 30 people known killed when a mudslide wiped out a small Washington community, one mystery troubles them.

    April 3, 2014 1 Photo

  • APTOPIX Fort Hood Fort Hood gunman sought mental health treatment

    An Iraq War veteran being treated for mental illness was the gunman who opened fire at Fort Hood, killing three people and wounding 16 others before committing suicide, in an attack on the same Texas military base where more than a dozen people were slain in 2009, authorities said.

    April 3, 2014 1 Photo

  • Supreme Court Campaign Big donors may give even more under court’s ruling

    The Supreme Court ruling Wednesday erasing a long-standing limit on campaign donations will allow a small number of very wealthy donors to give even more than is currently the case, according to students of the complex campaign finance system, and could strengthen the establishment in both parties.

    April 2, 2014 1 Photo

  • Former McDonald's store managers say they withheld employees' wages

    Two former McDonald's store managers, assisting with a campaign to raise pay for fast-food workers, said they helped withhold employees' wages at the restaurant chain after facing pressure to keep labor costs down.

    April 2, 2014