Profits Squeeze May Hit Growth

Related entries: Business Issues, Economy, General, Investment

While most headlines continue to exclaim about China’s fast growth, some voices of dissent are being heard.

There have been concerns over the 10.1 percent GDP growth in the first quarter, and interest rates were put up to try and slow things down. Now Forbes is quoting CLSA economist, Jim Walker as follows:

    “Low profitability among Chinese manufacturers points to an economic slowdown in China within a year, possibly cutting the annual gross domestic product (GDP) growth to about 5 pct from 10 pct currently”

Walker views this as a “healthy correction”, driven in part by high commodity prices that are squeezing profit margins, that could lead to consolidation. The report notes:

    “Profits among China’s A-share firms slipped 18 pct year-on-year in the fourth quarter of 2005, while industrial enterprises’ profits were growing only at 3.5 pct year-on-year and there was a growing gap between input and output prices as manufacturers are unable to pass on commodity prices”.

The Chinese Academy of Social Science (CASS) takes a more bullish view. Their estimate is that GDP will increase by 9.6 percent this year, according to another report from Forbes.

As Ernst & Young have learned to their pain (see here ), economic analysis is a difficult game in China. One thing is for sure, the issue is never black and white. Another thing is that, while the government has often managed to massage results to meet its targets, the growth of the private sector means they now have less direct control.

See news source:

    China economic correction imminent, growth to slip to 5 pct within …
    Forbes – USA
    SHANGHAI (AFX) – Low profitability among Chinese manufacturers points to an economic slowdown in China within a year, possibly cutting the annual gross …

    ViewPoints: China slams on the brakes
    International Herald Tribune – France
    The ripple effects of China’s move Thursday to brake its economy were surprising only in their magnitude. Commodity markets trembled …
    China says rate rise is just fine-tuningReuters – USA
    BEIJING, April 28 (Reuters) – China sent a clear signal on Friday that its first interest rate rise in 18 months will not be the start of a fierce tightening …

    China’s 2006 GDP to grow 9.6 pct – CASSForbes – USA
    BEIJING (AFX) – China’s gross domestic product (GDP) is expected to rise 9.6 pct this year and the consumer price index (CPI) is likely to grow two pct, the …

3 Responses to “Profits Squeeze May Hit Growth”

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  2. Archive » China is (Not) the Most Cost-Effective Country in the Region| China Business Blog Says:

    […] ueeze being faced by manufacturing companies in China, was noted in an earlier post(”Profits Squeeze May Hit Growth“, and the issue is starting to have an impact. The latest n […]

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    […] Sources, the Hong Kong-based trade show organiser and publisher.” It seems that the “profit squeeze” I reported on back in May is starting to bite. No doubt this news will cause […]

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