SHANGHAI (AFX) - Low profitability among Chinese manufacturers points to an economic slowdown in China within a year, possibly cutting the annual gross domestic product (GDP) growth to about 5 pct from 10 pct currently, CLSA chief economist Jim Walker said.
Speaking at the investment bank's annual China forum, Walker said: "In our view over the next year economic growth in China is going to come down from around 10 pct to about five."
Walker said that this would be a healthy correction as industries consolidate and unprofitable businesses cease to exist. "In the country as a whole companies need to consolidate so that profitability can be restored," he said.
He said that the correction would last for about six quarters.
Walker noted that the margin squeeze, which was in large part driven by high commodity prices, was evident in falling profitability of companies.
Profits among China's A-share firms slipped 18 pct year-on-year in the fourth quarter of 2005, while industrial enterprises' profits were growing only at 3.5 pct year-on-year and there was a growing gap between input and output prices as manufacturers are unable to pass on commodity prices, he noted.
"The bottom line is that Chinese manufacturing and the Chinese economy is today much more vulnerable than it has been for basically the last five years," Walker said.