Ample stock may cut China orders

       Despite several improving economic indicators, the Finance Ministry has warned that China might import less from the world once it has stocked up again on the goods and materials it needs, resulting in a drop in Thai exports.
       "We have two alternative assumptions about the current stage of economic conditions in China: that it is fully refilling its inventory; or that its economy recovery is decelerating," Finance Ministry spokesman Ekniti Nitithanprapas said yesterday.
       The ministry was surprised by a sharp drop in the Kingdom's exports to China last month following a number of months of improvement. Exports fell by 21.6 per cent year on year, against a contraction of only 3.6 per cent in June.
       China may have imported more previously, as it took advantage of cheap goods such as electronics parts, said Ekniti. Now, however, it may be stocking up on raw materials and intermediate products. The alternative explanation is the momentum of economic recovery driven by a huge stimulus package may be decelerating.
       In a separate development, the Chinese government on Wednesday said it planned to curb overcapacity in the key industries of steel and cement. It will also increase "guidance" over parts of the coal, glass and power industries, the State Council said on its website.
       Controls on stock and bond sales by companies in targeted sectors will be strengthened, it said. Asian stocks fell yesterday, dragging the MSCI Asia Pacific Index to a one-week low after China said it might curb steel and cement production, and Esprit Holdings - the Hong Kong-based clothing and accessories giant - reported a lower profit.
       The signal from China is it is not confident about the pace of the global economic recovery.
       However, Ekniti remains upbeat about the potential of the Chinese economy, saying it had contributed much to the recent improvement of the Asian economy.
       Another promising market is India, where Thailand's exports last month expanded 4.7 per cent year on year, he said.
       Ekniti said Asia could decouple from the United States, due to high savings among corporate firms and households. Increasing trade in the region will eventually turn people into final consumers.
       Fiscal Policy Office director-general Somchai Sujjapongse said several economic indicators last month suggested further improvement in the Thai economy, which rose 2.3 per cent in the second quarter from the previous three months.
       He predicted gross domestic product would contract by 2-3 per cent in the third quarter and expand by 2-3 per cent in the final quarter.
       Yesterday, the International Monetary Fund said in a statement that the Kingdom's economic contraction this year would be limited to 3 per cent, as the government was increasing spending to counter falling exports.
       Consumer spending in July rose from June, Somchai said, pointing to the collection of value-added tax, which increased on a seasonally adjusted basis by 7.3 per cent month on month.
       While VAT collection contracted 11.4 per cent year on year, he said the month-on-month movement was a sign of economic recovery. Public spending also contributed to the fledgling recovery, as budget disbursement for capital spending jumped 61.6 per cent year on year to Bt30.1 billion, while routine disbursement rose 18.2 per cent to Bt164 billion.
       Sales of passenger cars in July rose by 2.4 per cent from June, although they contracted 9.1 per cent from July 2008. Private investment also showed signs of improving, as imports of capital goods last month rose 6.2 per cent from June.
       However, the recovery in private investment is still fragile and requires government investment to lead it, said Somchai. He expects that public investment in the "Strong Thailand" stimulus package to lead to a "crowding in" of private investment. He expects the economy will expand by 2-3 per cent in the fourth quarter after contracting by 7.1 per cent and 4.9 per cent in the first and second quarters, respectively.
       Although the government is running a fiscal deficit, the public debt-to-GDP ratio was 43 per cent in June, a moderate level by international standards. Foreign reserves stood at US$12 billion (Bt410 billion), indicating economic stability, Somchai added.