what the heck is happening, page-164

BEIJING, Dec 15 (Reuters) - China's annual industrial output growth slumped to 5.4 percent in November -- the weakest reading for a non-holiday month since the start of the monthly data series in 1999 -- as manufacturers struggled with a drop in export demand and weakness in the domestic property market.

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KEY POINTS:
-- Market had expected a 7.1 percent rise. [ID:nPEK98882]
-- October output was up 8.2 percent from a year earlier.
-- For a breakdown, please double-click on [ID:nPEK9011]
COMMENTARY:

HU YUEXIAO, ANALYST AT SHANGHAI SECURITIES IN SHANGHAI:
"The main reason for the drop is slowing overall demand and the resulting overcapacity.
"Even without the external shocks, China's economy would be trending down, as production has been expanding too rapidly in previous years.
"The low November industrial output reading suggests bleak GDP growth for the fourth quarter.
"I think the industrial production growth might fall into negative territory in the first half of next year.
"And in the second half, things will look up with most of the inventories and production being digested.
"I think this will also weigh heavily on corporate profits."

QI JINMEI, SENIOR ECONOMIST AT THE STATE INFORMATION CENTRE IN BEIJING:
"The sharp drop is not surprising. That has already been reflected by the production figures for power generation and steel output.
"I don't think there are any signs the drop will stop. Next year will be a really harsh year."

JING ULRICH, CHAIRMAN, CHINA EQUITIES, J.P. MORGAN IN HONG KONG, IN A NOTE:
"China's industrial production growth could fall further in December, as a growing number of manufacturers cut production in response to weaker global demand.
"Export-related industrial activity will continue to slow until global economic conditions show signs of recovery. In the meantime, production cuts and factory closures are expected to increase.
"Industrial production growth should receive some support in 2009 as the government's economic stimulus package begins to generate new orders for construction materials."

BEN SIMPFENDORFER, STRATEGIST WITH ROYAL BANK OF SCOTLAND IN HONG KONG:
"Five percent GDP growth in the first half next year is now a reality, not a risk. There's little doubt the data will look ugly over the next six months. Nonetheless, as inventory drawdown eases and the fiscal package gains traction I'd expect to see signs of economic stabilisation in the second half of next year.
"I expect further specific fiscal easing measures and at least three more 27bp rate cuts by the end of Q2 2009."

MARKET REACTION:
The yuan was trading at 6.8462 per dollar at 0244 GMT compared with 6.8458 before the figures came out. The Shanghai stock market <.SSEC> was up 1.07 percent compared with a rise of 1.41 percent before the data.

LINKS:
For details, see the National Bureau of Statistics Web site (http://www.stats.gov.cn). Latest releases may not be immediately available.
BACKGROUND:
-- Factory output growth has slowed much more abruptly than originally expected, as export growth has fallen into negative territory in the wake of the global slowdown.
-- Output growth is now well below the range of 16.4 percent to the 18.5 percent recorded from 2003-2007, which was propelled by a boom in investment, much of it linked to exports.
-- Beijing wanted some slowdown from this giddy pace. It introduced new labour laws, increased burdens on the processing trade and is enforcing stricter compliance with environmental laws to discourage production of low-value output from energy-intensive industries that pollute a lot.
-- But Beijing did not want such an abrupt slowdown, fearing excessive job losses.
-- So as well as easing fiscal and monetary policy, the authorities have increased value-added tax rebates for exporters on multiple occasions this year. (Reporting by Jason Subler, Eadie Chen and Shen Yan; editing by Ken Wills) (([email protected]; +8610 6627 1215; Reuters Messaging: [email protected])) Keywords: CHINA ECONOMY/OUTPUT


15DEC08 13:47RTRS [nPEK28660] {EN}ENDS