Eurozone’s financial crisis still has supply chain implications for China

The largest risk facing China’s global supply chains is the ongoing Eurozone crisis, economists in Beijing reported this week.

According to IHS Global Insight’s China analyst, Alistair Thornton, this should be a concern as it will impact the nation’s short-term expansion trajectory.

“Indeed, China is locked in its monetary policy stance until inflation recedes, and remains extremely exposed to weakness in developed markets,” Thornton told SCMR in an interview. “China’s exports appear to be softening as demand falters from the U.S. and Europe, which will have a significant impact on its growth path.”

Meanwhile, China’s economy continues to “chug towards a soft-landing,” with data released this week showing that GDP expanded at an eight-quarter low of 9.1 percent year-on-year (y/y) in the third quarter, a touch below IHS Global Insight’s forecast of 9.2 pecent and the Bloomberg Consensus Forecast of 9.3 percent y/y. Year-to-date, GDP was up 9.4 percent y/y, after recording growth of 9.5 percent in the second quarter and 9.7 percent in the first. GDP grew at an annualized quarter-on-quarter rate of 9.5 percent in the third quarter.

Industrial production data for September appeared to belie this slowdown trend, picking up to 13.8 percent y/y from August’s 13.5 percent y/y. Industrial production was up 15.4 percent, on a month-on-month (m/m) annualized basis. Much of this was driven by a pick-up in heavy industry, which increased 14.3 percent y/y in September, up from 13.5 percent in August. Light industry, more directly affected by credit tightening, pulled back to 12.8 percent y/y, from August’s 13.4 percent.

“Some cracks are also showing on the domestic front,” said Thornton, “primarily in terms of the plight of small-to-medium sized enterprises.”

He added that market rates remain high, compounding the problem, and should show no sign of falling until the central government signals a shift in monetary policy stance.

“We are not at that point yet, although a drop-off in inflation or a rapid downturn in the Eurozone would hasten that moment,” Thornton added.

SC
MR