By Kevin Hamlin
Dec. 9 (Bloomberg) -- China’s industrial production probably grew at the weakest pace in nine years as exports slowed and the economy cooled, raising the likelihood of more interest-rate cuts and extra government spending.
Output rose 7.2 percent in November from a year earlier, according to the median estimate of 14 economists surveyed by Bloomberg News, down from 8.2 percent in October.
China needs to prepare for a “worst case scenario” as a global economic slump deepens, Central bank Governor Zhou Xiaochuan said Dec. 4. Exporters of toys, clothes and furniture are cutting production or closing down, triggering a surge in labor disputes and increasing the risk of social unrest in the world’s most populous nation.
“There will be more rate cuts and more fiscal easing,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland Plc in Hong Kong.
Industrial-production growth would be the least since October 1999, excluding distortions caused in January and February each year by Lunar New Year holidays. The number is due Dec. 15.
Simpfendorfer predicts two rate reductions before year’s end and is poised to cut his forecast for China’s economic growth in 2009 to 5 percent from an 8 percent estimate, depending on data this week and next. That would be the least since 1990.
China’s leaders are holding an annual economic policy meeting in Beijing this week and may consider a package of measures to boost consumption, including cutting personal income tax, according to Kevin Lai, senior economist at Daiwa Institute of Research in Hong Kong.
Export, Import Slowdown
Exports climbed 14.8 percent from a year earlier, the slowest pace since March last year, according to the median estimate of 18 economists surveyed by Bloomberg News. Trade numbers may be released as early as today.
Imports increased 12 percent, the least in six years, as commodity prices fell and weakness in manufacturing and construction cut demand for raw materials, the survey showed.
The trade surplus may have been $32 billion, the second biggest on record. October’s trade gap was $35.2 billion.
A Chinese newspaper had a gloomier forecast for exports. Shipments may have fallen last month for the first time since June 2001, the 21st Century Business Herald said Dec. 7, citing an unidentified person. The lowest estimate in the Bloomberg survey was for a 10 percent gain.
Demand is waning because of recessions in Europe, Japan and the U.S., where retail sales fell last month by the most since data began in 1969.
Labor Disputes, Social Instability
In China, labor disputes almost doubled in the first 10 months of this year as businesses closed and some owners fled, the official China Daily newspaper reported Dec. 5.
Sacked workers rioted at a toy factory in Guangdong province last month and Zhang Ping, the nation’s top planner, warned of the risk of “massive unemployment” and “social instability.”
On Nov. 9, the State Council announced a 4 trillion yuan ($581 billion) stimulus package, mostly for public works. The central bank has also cut the key one-year lending rate to 5.58 percent from 7.47 percent in September and dropped quotas limiting lending by banks.
The “aggressive” monetary response is likely to continue, said Grace Ng, an economist with JPMorgan Chase & Co. in Hong Kong, who expects the rate to fall to 3.96 percent next year.
Falling Yuan
The yuan’s biggest one-day decline in three years on Dec. 1. also has prompted speculation that China may allow its currency to depreciate, helping exporters by making their products cheaper in overseas markets.
The yuan may weaken as much as 10 percent against the dollar, Morgan Stanley said last week. In contrast, Commerce Minister Chen Deming said that the nation won’t rely on currency depreciation to help exporters who are suffering because of shrinking demand.
Inflation may have cooled in November for the seventh straight month. Consumer prices rose 3.3 percent, according to another Bloomberg News survey. That figure is due on Dec. 11.
To contact the reporters on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net
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