SINGAPORE (ICIS)--China’s economy has continued to weaken as global appetite for Asian-made goods wanes, slowing overall demand for petrochemicals in the region, analysts said on Monday.
Manufacturing activities in the country – which is Asia’s biggest economy and a major importer of petrochemical products – have not been showing signs of picking up as external demand remained in doldrums amid the eurozone debt crisis.
In its monthly survey of Chinese factories, UK banking group HSBC issued a lower flash purchasing managers’ index (PMI) for the country in August at 47.8 than July’s 49.5.
HSBC’s PMI readings for China have been below 50 for 10 straight months, indicating contraction in manufacturing output.
New export orders sub-index captured in the HSBC survey fell to 44.7 in August – the worst showing since March 2009.
“The collapse in August's new export orders reading implies that sluggish exports growth will stay with China for a while, following July's feeble 1% year-on-year exports growth print,” HSBC had said.
At 1%, China’s annual exports growth in July was at a six-month low.
“Export pressure for China will be still strong because of the eurozone crisis. Its export growth will continue to be in the single digit in August, and may be at below 5%,” said an analyst at China Customs who declined to be named.
Dwindling demand from the debt-ridden eurozone has weighed heavily on Chinese exports and this, in turn, is having a negative impact on other Asian economies, including Japan, South Korea and Taiwan, which count on the strength of Chinese demand for raw materials for production.
Based on July data, China is the biggest market for petrochemical raw materials for the three northeast Asian economies.
During the month, Japan's overall petrochemical exports fell by 8.2% year on year to (Y) 513.7bn ($6.54bn); South Korea’ shipments of the same products were down 22.3% at $3.2bn (€2.56bn), and; Taiwan reported an 18.9% year-on-year decline in chemical exports.
China’s import volumes of chemical raw materials showed a mixed picture in July, with propylene falling 42% year on year to 142,399 tonnes.
Its imports of methanol also fell by 48% year on year to 259,237 tonnes, while those of purified terephthalic acid (PTA) and phenol declined by 19% and 29%, respectively.
But it took in significantly higher volumes of butadiene in July at 243,920 tonnes – representing an eightfold increase from the previous corresponding period.
Apart from its slowing economy, China may also be requiring less imported volume of petrochemicals given an aggressive increase in domestic capacity in recent years, particularly for PTA.
“Despite tentative signs of stabilization in China, trade is stalling… Asia's smaller, trade-dependent economies will feel the chill in the coming months,” said HSBC Global Research.
China currently ranks as the world’s second biggest economy.
It was able to ride through the global recession of 2009 largely unscathed. But this time around, a huge hit on exports – its main engine of growth – is inevitable as the eurozone, which is deep in mounting debt crisis, is a major market.
“China has long relied on exports as a major source of economic growth, so this is a serious concern. And it mostly has to do with Europe,” consulting firm Deloitte said in a recent report.
“The main drag in Asia is currently the external side, with new export orders sliding more sharply than new orders,” said HSBC Global Research.
“For the first several months of this year, demand from the United States helped to offset weaker shipments to Europe, it said.
“However, the manufacturing cycle in the US has now also turned sharply, helping to explain the overall slump in Asian trade with more downside in the pipeline,” it added.
The Chinese economy is forecast to post an 8% growth this year, a deceleration from a 9.2% pace recorded in 2011, according to global financial watchdog – the International Monetary Fund (IMF).
China itself is projecting a lower growth of 7.5% this year.