China's factory output slows further

[December 15, 2008]  BEIJING (AP) -- Growth in China's factory output fell to its lowest level in nearly seven years as trade plunged, data showed Monday, adding to the threat of heavy job losses that could fuel unrest.

Industrial output rose 5.4 percent in November from a year earlier, down from October's 8.2 percent growth, the National Bureau of Statistics reported. An employee of the bureau who refused to give his name said it was the smallest monthly expansion since February 2002, when factory output grew by 2.7 percent.

The industrial weakness could be felt around the world as Chinese factories stop buying foreign raw materials. Manufacturing makes up 40 percent of China's economy and employs tens of millions of people. The loss of paychecks could undermine government efforts to shield it from the global downturn.

Demand has fallen so fast that factory output may already have started to shrink in December, according to Moody's Economy.com economist Sherman Chan.

"More and more job cuts in the manufacturing sector -- which will curb consumer demand -- will have wide ramifications in the domestic economy," Chan said in a report. "Beijing will need to do all they can to revive sentiment and prevent social unrest."

Communist leaders have warned of rising instability due to job losses and are pressing employers to minimize layoffs as Beijing rolls out measures to insulate China from the global economic slowdown.

Factory layoffs are rising in coastal regions that depend on exports, and the malaise is spreading inland as domestic demand for steel, autos and other goods weakens. Labor protests have occurred in Guangdong province in the southeast, a hub for export-driven manufacturing.

Exports fell unexpectedly in November for the first time in seven years. Auto sales in November were down 16 percent from a year earlier, according to the industry minister. He said last week the country has yet to see the bottom of its economic decline.

The economy is expected to expand by about 9 percent this year -- down from 11.9 percent in 2007 -- but analysts have repeatedly cut growth forecasts for next year.

The World Bank has slashed its 2009 growth forecast from 9.2 percent to 7.5 percent. Last week, Goldman Sachs cut its forecast from 7.5 percent to 6 percent. On Monday, Merrill Lynch cut its growth outlook from 8.6 percent to 8 percent.

Such growth would be the fastest for any major economy. But such a sharp decline is ominous for communist leaders who must create jobs for millions of new workers each year and satisfy a Chinese public that expects steadily rising incomes.

Over the weekend, the Cabinet announced it will increase China's money supply, or the amount of money circulating through the economy, by 17 percent next year to boost consumer spending and insulate the country from the global downturn.

That came on top of a 4 trillion yuan ($586 billion) stimulus package announced in November that is meant to create jobs and spur economic growth through higher spending on construction and other projects.

The drop in industrial activity could be especially painful for China's Asian neighbors and economies as far away as Australia and Brazil that supply industrial components, iron ore and other raw materials.

Half of China's nearly $1 trillion in imports last year was industrial components used in goods that were re-exported. Other foreign materials were used in steel and other goods for which domestic Chinese demand also has dropped.

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On the Net:

National Bureau of Statistics (in Chinese): http://www.stats.gov.cn/

[Associated Press; By JOE McDONALD]

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