November 11, 2014 4:45 PM
APEC Blue Has Chinese Factories Bleeding Red, Economists Say
A Chinese worker rests on a scaffold at the media center for the Asia-Pacific Economic Cooperation (APEC) summit in Beijing on November 6, 2014. Agence France-Presse/Getty Images
You might think that hosting a big fancy global meeting would be a boon to the local economy. For Beijing, though, it’s been a decided drain.
In Beijing’s haste to try and clean up its skies, it shuttered factories both in the city and in five neighboring provinces both before and during the Asia-Pacific Economic Cooperation meeting, which runs November 5-11. Its goal? To reduce carbon emissions by at least 30% as 21 visiting leaders from economies around the world descended on the city.
In the process, economists say, such moves have threatened to undercut China’s factory output, investment and trade growth at a time when the economy – the world’s second-largest — is struggling to regain momentum.
In addition to closing factories, the government also gave a holiday to students, government workers and state-run company employees. As well, the number of vehicles on the street were restricted and various construction projects delayed.
According to one estimate by Credit Suisse, such measures have affected an estimated one-quarter of China’s steel, 13% of its cement and 3% of its industrial output, which could shave 0.2 to 0.4 percentage points off China’s November industrial production figure. That would bring headline industrial production growth down to the low 7% range, year on year, from 8% in September.
APEC measures have had “a meaningful negative impact on short-term growth,” said Goldman Sachs economist Yu Song.
China’s economy has faced growing headwinds this year, with third-quarter growth decelerating to 7.3% year-on-year, its slowest pace in five years.
While economists said they expect Beijing to maintain its focus on targeted stimulus measures, some said APEC restrictions increase the likelihood of further monetary easing, including possible interest rate cuts and a reduction in the reserves that financial institutions maintain with the central bank.
Of the five provinces subject to the APEC restrictions, Hebei – which is roughly the size of Oklahoma – has been the most affected, given its proximity to Beijing and dependence on heavy industry.
Directives in Hebei were issued to close furnace operations from November 1-11, affecting at least 35 steel mills in some five jurisdictions of Hebei’s Tangshan city, the heart of the province’s steel base, Barclays said.
Steelmakers probably attempted to offset their November losses by accelerating output in October, Beijing-based investment firm First Capital said. Official steel output data for October will only be released Thursday, but Beijing was subject to three bouts of intense smog last month – an indication that Hebei’s steel output likely remained high last month.
Apart from steel, iron ore prices extended their year-long losing streak during the APEC period, falling to $75 a metric ton from $78.5 in late October. Some analysts attribute the decline in part to APEC, although expanded supply among large mining companies has also continued to exert downward price pressure.
Liu Zhenyu, a steel mill worker in Tangshan, said the government isn’t concerned with the losses suffered by private companies. “During APEC, our plant can’t produce 100,000 tons of steel,” he said. “With orders and production halted, we’re losing money.” While others have been granted holidays, Mr. Liu said, workers at his company are required to maintain machinery or take “steel study sessions.”
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At a time when investors are jittery over slow global growth, Credit Suisse said APEC restrictions also could fan short-term market uncertainty. “This may ignite another round of debate about the growth trajectory of the economy,” it added in a report.
For previous examples of how large-scale events like APEC have impacted the country’s growth, the example of the2008 Beijing Olympics and the 2014 Youth Games in Nanjing might prove instructive. For both those events, China imposed similar restrictions. The Beijing Olympics shaved from China’s industrial production around 1.2 percentage points year on year and the Youth Games around 0.7 percentage points, Goldman Sachs estimates.
Mr. Song said while some factories ramp up their output before and after APEC, a significant amount of investment and output is nonetheless lost. The shutdowns reduce growth in China’s fixed asset investment and trade, he added. Imports are hit harder than exports, he said, given heavy industry’s reliance on imported commodities, which could boost November’s trade surplus by around $7 billion.
The impact on retail is expected to be mixed, analysts said. Although some shops have closed, furloughed employees have more time to shop. “Any dip in traffic numbers through store fronts will likely be balanced by a jump in online sales,” said retail analyst Fergus Naughton of data provider Trusted Sources.
–Mark Magnier, Chuin-Wei Yap and Echo Xie
http://m.wsj.com/articles/BL-CJB-24827
