TPT March 2020

G LOBA L MARKE T P L AC E

China’s profits rose, though facing an uncer tain recovery

China’s National Bureau of Statistics’ Purchasing Managers’ Index (PMI) was unchanged from November at 50.2 in December, remaining above the 50-point mark that differentiates growth from contraction. November’s gain had ended six months of contraction and, combined with an increase in new orders, can be seen to have boosted global investor confidence and helped Chinese manufacturers book new export orders which rose, in December, for the first time since May 2018. Other sectors, however, are not yet seeing an upturn in fortunes. Growth in China’s services sector slowed during December, and a separate survey showed the official non- manufacturing Purchasing Managers’ Index dropped to 53.5, from an eight-month high of 54.4 in November. Beijing has relied on its strong services sector to offset manufacturing weakness, but the broader economic slowdown since 2018 has limited the sector’s resilience. Research and development Using fibre to detect seismic events Researchers at Penn State University believe that the existing global network of underground optic fibre could be utilised to detect so-called “thunderquakes” (thunder-induced seismic events). Thunder creates acoustic pressure, miles above the Earth, that travels down, hits the ground and spreads in waves. While thunderquakes are undetectable by humans, the slight movements can be picked up by fibre optic cables. To test the theory the research team used distributed acoustic sensing (DAS) to track the direction of a storm on campus, based on the intensity of thunderquake events. Their findings were compared with the location of lightning recorded by the US National Lightning Detection Network, and found to agree. “Severe weather has strong interactions with the ground, but we haven’t had the capability to study the coupling between the atmosphere and the solid Earth,” said assistant professor Tieyuan Zhu, lead author on the study. “With this new technology, we can utilise existing fibre optic networks to clearly see how thunderstorm energy passed through campus.” The scientists explained that the DAS array sends a laser along the glass fibres contained inside the cables, and can detect changes as slight as that caused by someone walking. The array takes measurements every six-and-a-half feet, meaning that the several miles of continuous cable under the University Park campus acted as a sensor network. “The ability to use fibre optic cables to detect the source of thunder provides yet another way to track thunderstorms and help with public safety and emergency response, especially in urban areas,” said David Stensrud, a co-author on the study. “Every new data source helps to improve our storm-tracking ability.” Zhu added: “If there is any change in the external energy on the ground above, even walking steps, you will have a very small change that’s going to stretch or compress the fibre. The laser is very sensitive, and can detect these small changes.”

China’s National Bureau of Statistics reviewed the results of an uncertain trading year. Profits for industrial firms were said to have grown steadily for the eight months from March to November, but a general weakness in domestic demand is expected to be a risk to company earnings in 2020. China’s industrial sector has faced persistent pressure, facing slow demand in combination with the ongoing US trade dispute, but recent factory activity surveys have indicated some recovery in the manufacturing sector. Industrial profits rose by 5.4 per cent in November, year-on-year, ending three months of decline that reached a peak 9.9 per cent drop in October. Zhu Hong, an official with the statistics bureau, said in a statement that the expansion was: “mostly due to quickening production and sales,” while factory gate prices contracted at a slower pace, but he warned against expectation of a sustained recovery. “Although the profit growth turned to positive in November, we have to see that the current downward pressure on the economy is still big, and the volatility and uncertainty of profit growth still exist due to multiple factors such as market demand and industrial prices.” During November, profits at Chinese state-owned industrial firms rose 0.6 per cent from a year earlier, reversing the declining trend of the second half of 2019, while private sector profits also reported accelerated growth. The chemical, petroleum processing and steel industries, in particular, reported recovering profits with increased market demand and rising prices amid fitful recoveries in industrial output at home and abroad. However, after seeing the published data, analysts at Nomura concluded: “We expect the surge in industrial profit growth to be just short-lived, given strong growth headwinds and still-elevated uncertainty amid US-China trade tensions. In our view, Beijing will likely continue to roll out moderate easing measures amid limited policy room.” The so-termed Trade War between China and the US was showing signs of cooling by the end of 2019, with a reduction in some US tariffs in return for more Chinese purchases of American farm products, but there is every sign that China’s economy could face greater downward pressure in 2020. As it is, the expansion has been at its slowest pace for almost 30 years. China’s industrial sector lost over 25 million jobs between 2013 to end-2018, mostly in labour-intensive industries, as labour costs rose. Factories continued to shed jobs in December, but the pace of reduction did not accelerate. Policy sources have said that China will set a lower economic growth target of around six per cent in 2020, relying on increased state infrastructure spending, “to ward off a sharper slowdown”. Factory results Factory activity in China ended the year well, with expansion for the second consecutive month in December. Production increased, and export orders rose amid signs of progress in trade talks with the US.

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MARCH 2020