Asia Economy
Finfacts in China as emerging economies wobble
By Michael Hennigan, Finfacts founder and editor
Feb 12, 2014 - 7:50 AM

Zhou Enlai, left, and Henry Kissinger in Beijing in 1971: Kissinger Archives/Library of Congress: Henry Kissinger (b. 1923), the German-born American statesman, who as US national security adviser, paved the way for the normalisation of relations between the United States and China in 1971/1972, wrote in his book 'On China,' which was published in 2011, on Zhou Enlai, China's then prime minister: “In some sixty years of public life, I have encountered no more compelling figure than Zhou Enlai. Short, elegant, with an expressive face framing luminous eyes..." Zhou met Kissinger in Beijing in 1971 and the received wisdom is that when the Chinese premier was asked about the impact of the French Revolution, he remarked that "it was too early to tell." The apparent comment is often used to suggest China's long-distance vision. However, at a seminar in Washington DC, coinciding with the launch of Dr. Kissinger's book, Chas Freeman, a former foreign service official who was an interpreter, set the record straight. “I distinctly remember the exchange. There was a mis­understanding that was too delicious to invite correction,” Freeman is reported by the Financial Times as saying. In 1968, three years before the Kissinger-Zhou encounter, Paris had been rocked by student riots and the 'French Revolution' and the 'Paris Commune' were terms used about the revolt against the old order.

In 1898, The Skibbereen Eagle, one of  two newspapers in the West Cork town of Skibbereen, won international fame when it had thundered in an editorial against Russia's Tsar Nicholas II, who had expansionist designs on the crumbling Chinese empire. The editor had ominously warned that his newspaper would be keeping an "eye" on the tsar! Finfacts has more modest pretensions this week in the Guangzhou area, in China's Guangdong province, located in the Pearl River delta industrial heartland, northwest of Hong Kong. Business is still humming but the narrative that all emerging economies, absent significant natural resources, could become miracle ones, has been dashed. It's an exception to sustain a trajectory to become a developed nation.

The HSBC Emerging Markets Index (EMI), a monthly indicator derived from the PMI (purchasing managers' index)  surveys, fell for the second month running in January to 51.4, from 51.6 in December. That signalled a slower increase in output across global emerging markets. The EMI reading in the opening month of 2014 was the lowest since last September, and below the 2013 average of 51.7.

Manufacturing production rose at a pace little-changed from December, and one that was only slightly weaker than the historic eight-year average for the series. Slower expansions in China and Brazil, and falling output in Russia and Indonesia, were offset by stronger growth in India, Poland, Taiwan and Mexico.

Growth of services activity in the largest emerging markets slowed to a six-month low in January. India and Brazil both posted declines, while growth rates in China and Russia were weak.

New business growth in global emerging markets was little-changed from December, but slower than the average for the final quarter of 2013. Backlogs declined marginally for the first time in four months, and employment was broadly flat in January.

Inflationary pressures remained subdued. Input and output prices both increased at the slowest rates in six months. Moreover, manufacturing input prices in China declined for the first time since last July. In contrast, Turkish goods producers faced the steepest rise in input prices in nearly three years, linked to the weak currency.

Business expectations

The HSBC Emerging Markets Future Output Index is a new series tracking firms‟ expectations for activity in 12 months‟ time. The index picked up in January, but was weaker than the 2013 average. Manufacturing sentiment hit a ten-month high, while the outlook in the service sector fell to a record low.

Among the largest emerging markets, China posted the strongest sentiment in ten months (manufacturing and services combined), but a weaker outlook than the remaining BRIC economies. Brazilian sentiment slowed to a nine-month low, while the Future Output Indexes for Russia and India picked up but remained historically weak.

Pablo Goldberg, global head of Emerging Markets Research commented  - - "Two positive indicators suggest there are reasons to stay moderately upbeat on the resilience of EM economic activity. First, new export orders have improved for many countries and, second, the forward-looking new orders-inventory mix continues to improve. On the negative side, the China manufacturing PMI has fallen below 50, which is bad news for many emerging markets. Moreover, a combination of activity and price PMIs suggests the room for further monetary easing has closed. Lastly, the employment PMI shows a deterioration across the board, which could eventually hurt domestic consumption."

The HSBC Emerging Markets Index (EMI) is a weighted composite indicator derived from purchasing managers’ index (PMI) surveys in the following economies: China; South Korea; Taiwan; Hong Kong; Vietnam; Indonesia; India; Brazil; Mexico; Turkey; United Arab Emirates; Saudi Arabia; Egypt; South Africa; Russia; Poland; Czech Republic.

We will return to the regular service on Tuesday, Feb 18.