Monday, March 17, 2008

Recesssion has its Impact on China: China factory output growth cools

China's industrial output weakened in January and February as firms were hit by lower exports, official data shows.

The measure of factory production grew by 15.4% in the two month period, down from 18.5% in the same period of 2007.

Chinese firms are having to deal with higher raw material costs after crude oil prices climbed to record levels.

They have also been hit by a stronger yuan, weakening US demand, and poor weather at the start of the year, which hampered transport and distribution.

"Exporters are facing big problems and they are unable to make profit," said Andy Xie, an independent economist based in Shanghai.

Recent figures showed that Chinese exports increased by 16.8% in the eight weeks to the end of February, less than half the growth rate of 41.5% in the same period a year earlier.

As well as the external problems facing Chinese producers, the government also is taking steps to slow output in an attempt to stop the booming economy from overheating.

China's continuing economic expansion has pushed up the rate of inflation, and prompted higher interest rates.

"With heightened inflation risks, we expect that further tightening measures by the government coupled with a gradual softening in exports will likely lead to downward pressure on industrial production," Goldman Sachs said.

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