China’s supply chain may face new challenges

As China strides into the Year of the Dragon, its economy is in the midst of an aggressive slowdown, warns IHS Global Insight economists.

By ·

Supply chain managers are being cautioned to expect a downturn in China’s consumer demand.

As China strides into the Year of the Dragon, its economy is in the midst of an aggressive slowdown, warned IHS Global Insight economists. Although year-on-year growth came in above expectations at 8.9 percent, the annualized quarter-on-quarter rate sank to 8.2 percent, significantly below Q3’s 9.5 percent.

Other indicators point to a faster slowing economy, with real estate investment growth decelerating rapidly in the final month of the year.  In this light, the property market correction is providing the greatest downside momentum, with still-tight credit conditions choking activity in the broader economy and the precarious Eurozone providing plenty of drag.

“The worst is still to come, with GDP growth likely to sink over a percentage point lower this quarter,” said chief China economist, Todd Lee.

IHS Global Insight projects GDP growth of 7.5-8 percent for 2012, although the risk remains solidly on the downside.

“That said, the purchasing managers’ indices suggest that demand withdrawal in the current downturn is nowhere near as severe as in 2008-2009,” noted Lee. “To some extent, improvement in the US economy has cushioned the demand correction in Europe.
Given the Eurozone crisis has, thus far, been a slow-bleeding process – unlike the sudden collapse of the US financial crisis – China’s hard landing risks are not imminent, at least from the external sector.”

The medium-term risks cannot be overlooked. Indeed, the export sector outlook appears bleak, whilst the improvement in the US economy is tepid and we do not expect any drastic turnaround. Even if the Eurozone avoids a near-term blowout, its longer-term growth will likely remain weak given the fundamental structural problems of the monetary union remain unresolved.

Lee said that the key question for China’s export sector is whether it can reorient itself and create a supply-side boost to cushion this external demand weakness.

“Furthermore, the goal of spurring household consumption demand remains elusive, given the structural nature of high household saving,” he said.

IHS economists said that in this respect, there is still little sign of progress towards the official goal of rebalancing. Even as external imbalances appear to be resolving themselves, internally the economy is even more skewed towards investment.


About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

Subscribe to Logistics Management Magazine!

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!

Latest Whitepaper
Lead your organization through the driver shortage and over-the-road regulations.
Potential transportation disruptions are looming as increased over-the-road regulations are set to go into effect in 2017. Experts believe these regulations will further impact the already challenged driver pool as well as reduce driver productivity.
Download Today!
From the January 2017 Issue
Following LM tradition, we start off the New Year with our annual “Rate Outlook” cover story and subsequent Webcast
Moore on Pricing: The other TMS functional options
2017 Rate Outlook: Where are freight transportation rates headed?
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!
Latest Webcast
2017 Rate Outlook: Where are freight transportation rates headed?
Join our panel of top oil and transportation analysts for an exclusive look at where rates are headed and the issues driving those rate increases over the coming year.
Register Today!
EDITORS' PICKS
2017 Rate Outlook: Will the pieces fall into place?
Trade and transport analysts see a turnaround in last year’s negative market outlook, but as...
Logistics Management’s Top Logistics News Stories 2016
From mergers and acquisitions to regulation changes, Logistics Management has compiled the most...

Making the TMS Decision: Ariens Finds Just the Right Fit
The third time is the charm for this U.S. manufacturer on the hunt for a third-party logistics (3PL)...
Motor Carrier Regulations Update: Caught in a Trap
The fed is hitting truckers with a barrage of costly regulations in an era of scant profits....