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Wednesday, November 15, 2006

China is Slowing

Well the slowdown in the Chinese economy is now becoming more and more evident. I would be watching for the knock-on effects of this in Japan and Germany. The first sign of this impact was the sudden decline in machinery and equipment orders in Japan in September. (Claus Vistesen is following the Japan situation closely):

China's industrial output rose at the slowest pace in almost two years in October, indicating that a government clampdown on investment is succeeding and an export boom may be losing steam.

Production rose 14.7 percent from a year earlier to 760 billion yuan ($96 billion) after gaining 16.1 percent in September, the National Bureau of Statistics said today. That was lower than every forecast of 20 economists surveyed by Bloomberg News.

Output growth has eased since June as Premier Wen Jiabao moved to choke off funding for wasteful investment projects that threaten to leave China with idle plants. A slowdown in exports could help stem a record trade surplus that's flooded the economy with cash and strained relations with the U.S. and Europe.

``Exports have begun to show signs of weakening,'' said Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong. At the same time, government ``tightening this year clearly has had an impact on parts of the economy.''

October's increase was the smallest since December 2004, adjusting for distortions caused by the Lunar New Year holiday. For the first 10 months combined, output rose 16.9 percent from a year earlier.

Also notice the disinflationary (or even downright deflationary) pressure which is now coming out of China as I indicated late last week. Yesterday's producer prices data in the US (which I am about to post on) is another reflection of this situation. I think we are about to see another 'reading' of the inflation story. China and the US would seem to hold the key to the general growth outlook for 2007.

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