Taiwan, China and Emerging Asia

Taiwan industrial production fell 8.15% in the year to December and by 0.25% over the month.  Export orders fell by 0.8% in December and have registered no growth over the last six months.   Declines in export orders were registered in the top 4 export categories representing 63% of export orders.

The biggest falls in export orders were to the ASEAN and Eurozone economies in December, and while December orders to China and Hong Kong were marginally up on the month, over the year they had fallen 3.5%.   Apparently exports to mainland China are largely intermediate goods for re-export, so China data may lag Euro and ASEAN data.  Order to the US remain in positive growth territory.

China HSCB flash PMI shows a third consecutive reading below 50, at 48.8, an improvement from the previous month: the output index contracted, new orders contracted but at a slower rate and new export orders expanded, albeit at subdued levels.   Again, it would appear that the domestic engine is marginally weaker than the international, with output overall impacted by a sequence of weak total new order activity.

The HSBC 4th quarter Emerging Markets index shows significant weakness in fourth quarter manufacturing, the weakest since Q1 2009 with relative strength from the services’ sector.

“From the HSBC EMI report: “Emerging market manufacturing output fell for a second successive quarter and at the sharpest pace since Q1 2009, driven by a reduction in factory output across emerging Asia. In contrast, service providers saw business activity growth accelerate in Q4 from the nine-quarter low seen in Q3, and the services sector expressed continued optimism in its one-year business outlook, although the degree of positive sentiment was muted relative to previous indices….The decrease in manufacturing production was led by Taiwan and South Korea but the trend was mirrored across Asia, with China and Hong Kong easing and Singapore output stagnant……Service sector activity growth edged upwards from the nine-quarter low seen in Q3 2011, with Brazil and China both recording faster rates of expansion during Q4 even as India and Russia both saw growth ease. When questioned about the prospects for activity over the coming year, emerging market service providers demonstrated muted optimism, with Chinese confidence touching a series-low, closely followed by India and
Russia who posted 11- and 12-quarter lows respectively.”

Emerging market, in particular Asian market performance, needs to be carefully monitored: global trade is a key metric in Asian economic health, and a healthy Asian economy ostensibly key to developed economic recovery.   

Negative coincident data does not imply conditions are going to deteriorate, just as positive figures do not imply things are going to get better: overall it is the structural dynamics of demand, capacity (labour as well as capital), and technology that drives growth forward.  At the present moment in time we have excess debt, domestic structural and global imbalances, which implies excess supply and weak demand conditions and a long period of readjustment.   

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