BEIJING, China – China and Japan reported gloomy industrial data Wednesday, adding to pressure on leaders of the world’s second- and third-largest economies to launch new stimulus.
Two surveys showed Chinese manufacturing was weak in March and employers cut more jobs. In Japan, a central bank survey found companies expect conditions to deteriorate and plan to cut investment.
The latest data muddy the global outlook at a time when the U.S. is the only major economy to show signs of healthy momentum. Both China and Japan are relying on U.S. demand and a strong dollar to offset internal problems. Either could send shockwaves through the global economy if efforts to overhaul their economic models fail.
The loss of manufacturing jobs is a setback for Chinese leaders who are trying to steer their economy to more sustainable growth based on domestic consumption while avoiding a politically dangerous spike in unemployment. They have cut interest rates twice since November but want to avoid a large-scale stimulus that would set back efforts to reduce reliance on investment.
The surveys by HSBC Corp. and an industry group, the China Federation of Logistics and Purchasing, found manufacturing was weak in March. HSBC said companies shed jobs at their fastest rate in seven months. That came after China’s central bank governor, Zhou Xiaochuan, warned Sunday that economic growth had fallen “too sharply.”
Despite improvement in the federation’s index, “growth is still likely to have slowed sharply last quarter,” said Julian Evans-Pritchard of Capital Economics in a report. “We expect more policy support measures, including further rate cuts and required reserve ratio reductions, as the government moves to avoid missing its annual growth target.”
The Bank of Japan’s quarterly “tankan” survey, the country’s leading measure of corporate sentiment, highlights a dilemma for leaders who are trying to break out of two decades of stagnation.
Japanese media assert there is growing friction between the central bank and Prime Minister Shinzo Abe’s administration over expanding stimulus further. The central bank governor, Haruhiko Kuroda, says the economy is on course for a moderate recovery and inflation will pick up again after it cools due to lower oil prices.
The central bank has been pumping trillions of yen (tens of billions of dollars) into the economy through asset purchases aimed at keeping interest rates low and stimulating inflation. But Kuroda and other economists say government action alone cannot fix Japan’s problem with weakening demand.
Two-thirds of the 11,126 companies surveyed anticipate a further deterioration in conditions. Some 83 per cent of large manufacturers found conditions “not so favourable” or unfavourable.
The survey found companies plan to reduce capital spending by nearly 5 per cent in this fiscal year, which ends March 31, 2016. The companies expect to cut spending on land purchases by nearly 37 per cent.
Japan emerged from recession last year following a sales tax hike that dented consumer and corporate demand. But growth still is weak.
In China, economic growth slowed to 7.3 per cent in the latest quarter. That prompted concern the decline brought on by Beijing’s efforts to shift the economy to self-sustaining growth based on domestic consumption might be deepening too sharply.
The top Chinese economic official, Premier Li Keqiang, said in March that Beijing might intervene to stimulate growth if employment weakens too much.
Manufacturing “continues to struggle to gain growth traction,” said economist Annabel Fiddes of Markit Economics, which conducted the HSBC survey.
“Company downsizing policies contributed to a further decline in manufacturing employment,” Fiddes said in a statement. “Any savings were generally passed on to clients as part of attempts to attract new business, suggesting a further squeeze on profit margins.”
Instead of the uptick usually seen as Chinese factories resume work following the Lunar New Year holiday, HSBC said its survey showed new orders declined for the first time in three months. New export work also fell for a second straight month.
On Sunday, the Chinese central bank governor, Zhou Xiaochuan, said growth had fallen “too sharply.” He said inflation has fallen so low the country should be alert to the possibility of deflation, or a damaging overall decline in prices.
HSBC Corp.: www.hsbc.com
China Federation of Logistics and Purchasing: www.chinawuliu.com.cn