Word: economisters
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...have been able to increase output in recent years because the global economy has been on a tear. The 2004-07 period saw the second strongest bout of global growth on record - which translated into strong demand for cheap Chinese-made products. But this era may be ending. Most economists are predicting a significant slowdown in worldwide GDP growth in 2008. This slowdown, predicts Lehman Brothers economist Sun Ming-chun, will prove to be the "unmasking of [manufacturing] overcapacity in China." Says Li of the Asia Footwear Association: "The cake is only so big, and when you have too many...
...cheap workers, but that edge is getting dull. Labor costs have increased 50% in the past four years across southeastern provinces - an area of China sometimes called the "workshop of the world" - and a new labor law passed by Beijing will only add to the burden. Jonathan Anderson, an economist at UBS in Hong Kong, says that factory owners in southern China believe the new law will drive labor costs another 10-25% higher. Among other provisions, the new law entitles laid-off workers to one month of severance pay for every year of employment. "In a case where...
...have serious consequences for China's economy and society. The specter of legions of laid-off migrant workers roaming the streets in search of jobs is bound to keep Beijing's economic policymakers, who fear the political consequences of widespread social unrest, up at night. Sun, the Lehman Brothers economist, says as manufacturers are pushed to the brink, China's stock markets could see sharp declines. Given that many large, listed Chinese companies pad their profits by investing in stocks themselves, "a big correction could bring [corporate earnings] even lower, and a vicious cycle could result," says...
...course, worst-case scenarios don't always come true. Anderson, the UBS economist, isn't overly pessimistic. But he sees China's export growth rate falling from about 25% a year to single-digits by mid-2008. "2008 will likely be the year manufacturers [are] finally forced to take a general hit on profitability," he says. A soft landing for factories might even be beneficial for the country in the long term, because it would weed out inefficient operators and boost China's productivity. A period of "creative destruction" is an inevitable part of any business cycle. China's economic...
...Sources: A.P.; BBC; JPMorgan Chase; A.P.; New York Times; Financial Times Numbers Sources: A.P.; Mortgage Asset Research Institute; Wall Street Journal (2); BBC; EADS Astrium; A.P.; Economist Intelligence Unit