Chinese New Year May Not Be So Happy

23 Jan 12

As China welcomes it's new year, many may find out when they return to work they have no jobs.

A preliminary reading of the HSBC Purchasing Managers Index (PMI) for Chinese manufacturing in January remains flat at 48.8, comparable with Decembers' PMI of 48.7. Any level below 50 reflects contraction in activity.

Whilst economists believe that Chinese policy makers have, and are doing enough to ensure that the Chinese economy has a soft landing, the country continues to be plagued by weak demand for exported goods from western countries, in particular the Eurozone which is in the process of resolving it's debt crisis.

Given that China is Australia's biggest customer for commodities, it stands to reason that if flat conditions persist we will see a drop in our export volumes and potentially weaker commodity prices.

World oil prices have declined 1.9 per cent on the news of the weak Chinese PMI, as China is the world's second-largest oil consumer, trailing only the US. China used a stagering 9.06 million barrels a day last year as revealed by a BP statistical review of world energy.

Whilst some positive economic data has been coming from the US in recent weeks, and talks in the Eurozone continue toward finding a resolution to the regions debt crisis, consumer and business confidence, the globe over remains weak, which naturally has flow on effects for the "worlds factory" being China.

A weak China is of concern to Australia because of our reliance on commodity exports to the Asian region and highlights the dangers of that reliance in the face of a shrinking manufacturing sector, that the Australia Government is seemingly indifferent too.

Australia's manufacturing sector whilst world renowned for it's engineering prowess and innovation, is seemingly being ignored by Government policy makers with only token measures of support, and no longer term strategy to ensure its future. The manufacturing sector is a significant employer of Australians and news of a weak China highlights that potentially, our mining exports boom, is just that, a boom which will inevitably end, so what then for the Australian economy? Once a country's manufacturing base is gone, it is impossible to get it back.