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High Inventory Or Amplification Of Growth Stall In China

2011/5/20 15:35:00 77

Worried about the stall of China's economic growth? Here's a new reason: because of the higher inventory level, if demand weakens, the decline in output may be even faster.

The inventory cycle will magnify the ups and downs of manufacturing output.

When demand is strong, enterprises will increase production and increase inventories, which will further boost economic growth.

When demand is weak, enterprises reduce production and sell them step by step.

Stock

Economic growth has been further hit.

During the global recession in late 2008, a sharp drop in demand forced businesses to stop production and sell inventories, exacerbating the world economic crisis.

When economic growth returned to the right track in 2009, the replenish of inventories has further boosted growth.

In China, this process is the same, but reliable inventory data are harder to find than in other countries.

Existing data show that the inventory level is high. If the terminal demand slows down in the coming months, high inventory will cause a blow to output.

Data from China Federation of Logistics and Purchasing show that the inventory of finished products increased from 3 to April.

This is not normal, because the data are generally

Display inventory

Decline.

Calculations by Rui Yin, a Chinese economist at UBS, show that the inventory sales ratio of key industrial sectors is close to the level before the crisis.

The replenish of inventory reflects the adequacy of liquidity and the confidence of the manufacturing sector in China's economic recovery.

The trouble is that if demand falls now, the response of the producers will be to reduce inventories, thereby creating a double blow to output.

The demand outlook is unpredictable, but there is reason to worry.

The growth rate of industrial added value, the most concerned indicator of China's industrial production in April, has decreased from 14.8% in March to 13.4% in the past year.

As a key source of iron and steel demand, the growth rate of automobile production also dropped to -1.6% with the decline of sales volume.

Real estate investment is still booming, but it is widely expected that construction activities will be reduced due to excessive government regulation and supply.

The variable is inflation.

consumption

If the price index slows down, so that the government can no longer tighten monetary policy, then the speed of economic growth should rebound and the worries about the stock cycle will be weakened.

But if inflation remains high and policy remains tight, if China's economic growth slows down in the next few months, it will most likely be exacerbated by high deposits.