11/02/2011, 00.00
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Chinese output affected by Europe’s crisis

Industrial activity slowed down unexpectedly in October because of lower foreign demand. Banks ease credit, increasing the risk of “bad loans.” Meanwhile, Chinese shares gain today.
Beijing (AsiaNews/Agencies) – China’s global factory activity slowed down in October on weak demand for exports, raising the risk that Europe's debt crisis could drag the global economy into a new recession. In order to maintain output, the authorities are loosening credit strings but banks could find themselves stuck with “bad loans”.

The official purchasing managers' index (PMI), based on a survey of 820 manufacturers, dropped to 50.4 in October from 51.2 in September, the worst point since February 2009. A reading below 50 suggests a contraction. The decline was unexpected, far below the 51.8 forecast by many economists.

Output among Asian industrial nations dropped in October to its lowest point in three years, as exports to Europe and the United States declined. Many now fear that Europe’s foreign debt crisis might plunge the world in a new recession.

Manufacturing activity in Taiwan contracted in October to 43.7 from 44.5 in September, whilst South Korea saw a slight improvement with its reading increasing to 48 in October from 47.5 in the previous month.

An official index measuring new export orders fell to 48.6 in October from 50.9 in September. “The fall in the October PMI indicates that economic growth is likely to slow further in the future,” Zhang Liqun, a government analyst, said.

"I think the best we can hope for is a prolonged period of sluggish growth, but there has to be a significant risk that a further escalation of the financial crisis in Europe tips the world back into recession," said Julian Jessop, chief global economist at Capital Economics in London.

China’s figures are worrisome because government and banks are already heavily involved in propping up manufacturing.

In its survey of more than 430 purchasing managers, HSBC found that activity expanded slightly, with its index hitting 51.0 in October compared with 49.9 in September .

"The improvement in the HSBC PMI was likely supported by the government's policies to alleviate the pain being felt by smaller companies," said Chang Jian, an economist at Barclays Capital.

China's economic growth slowed to 9.1 per cent in the third quarter from 9.5 per cent in the second quarter.

China's top four banks (Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China) extended 140 billion yuan (US$ 22 billion) of new loans in October, signalling the government’s intention to pump more money to bolster companies in difficulty.

In previous months, the authorities had imposed restrictions on loans to curb inflation, which experts now hope to see declining.

However, this will raise the risk of more bad loans. The China Construction Bank, the second-largest mainland lender by assets, said non-performing loans (NPL) rose 1.9 per cent in the third quarter from the previous quarter, whilst Bank of China, the fourth-largest mainland bank by assets, said bad loans in that period increased 1.6 per cent.

Increasingly, Chinese authorities have been criticised for using banks to support the economy at the expense of the long-term viability of its financial institutions.

Meanwhile, shares are up. In Hong Kong, they staged a rebound 1.9 per cent by mid-day Wednesday reversing a 2.5 per cent loss yesterday.

The Shanghai Composite ended the day up 1.4 per cent at its highest level in nearly 1-1/2 months after China's Vice Finance Minister confirmed the economy was on the right track. (PB)
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