Asia Pacifc Economic Outlook — September 2012 4
China’s economy continues to generatedisappointing economic news, but the sot landingscenario remains likely given the eorts by thegovernment to oset weak external demand.
Themain problem, o course, is the situation in Europe. Thegovernment reported that, in July, exports were up only1 percent rom a year earlier while imports were up 4.7percent. The weakness in exports reected the problemsin the global economy, but mainly in Europe. Exportsto Europe were down 16.1 percent, while exports tothe United States rose a very modest 0.6 percent.The European situation is so worrisome that it has elicitedcomments rom China’s leadership. In a meeting inBeijing with Germany’s Chancellor Angela Merkel, China’sPremier Wen Jiabao called or the peripheral countrieso Europe to do more to reorm. He said, “The mainworries are twoold: frst is whether Greece will leavethe Eurozone. The second is whether Italy and Spain willtake comprehensive rescue measures. Resolving thesetwo problems rests with whether Greece, Spain, Italy,and other countries have the determination or reorm.”Premier Wen also commented on what China can do. Hesaid, “China is willing, on condition o ully evaluatingthe risks, to continue to invest in the Eurozone sovereigndebt market.” China is clearly worried about Europe’sprospects. The European Union was China’s largestexport market until recently, but as exports to Europeslowed, the United States became the largest market orChina. The speed o recovery in China will depend, inpart, on what happens in Europe. It is not clear, however,that Chinese purchases o Eurozone debt will makemuch o a dierence or Europe except to boost thevalue o the euro—something Europe doesn’t need.The export problem has aected the health o China’sindustrial economy. A preliminary purchasing manager’sindex or Chinese manuacturing (published by HSBC/ Markit) ell rom 49.3 in July to 47.8 in August. Thiswas the weakest reading since November and the tenthconsecutive month that the index was below 50.0,indicating acceleration in the decline o manuacturingactivity. This index was consistent with other indicators thatsuggest worsening perormance. Export growth has stalled,and oreign direct investment is down. In addition, theChinese government reported that industrial productionwas up 9.2 percent in July rom a year earlier, and retailsales were up 13.1 percent rom a year earlier. Both fgureswere considerably weaker than market expectations.