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China's Economy Seems to Be Slowing Descent

China's economy is showing signs it is not declining as quickly as in past months, but officials warn that calling this an about-face may be premature.

Edward Tsui sees change in Dongguan.

"Last year, closing, a lot of factories closing," he said. "This coming half year, maybe more small factories will be closing."

Tsui is an Executive Member of The Chinese Manufacturers' Association of Hong Kong and a manufacturer in China's Dongguan Province. His factories make metal parts such as screws and fasteners that are sold on overseas markets, which are shriveling up as the world economic crisis deepens.

"Every order is cut down, low order from Europe," he said.

He has had to lay off 30 percent of his factory workforce and does not expect the situation to get better for his business, China, or the rest of the world anytime soon.

Though things look grim for businessmen like Tsui in sectors such as manufacturing, other indicators show China may be starting to bounce back from what is the worst global economic crisis since the 1930s.

RGE Monitor chief analyst Rachel Ziemba has been watching the fluctuations of China's economy closely and finds the immediate fate of the world's most populous nation uncertain.

"With China being an increasing part of global economy, a downturn in global trade especially, effects China significantly," she said. "In particular, what we are seeing this year is a contraction in global trade."

Numbers released last week have revealed that foreign investment in China has dropped a staggering 20 percent, and according to Chinese officials it is the first time since the 1997 Asian financial crisis that China's foreign investment has declined for five straight months.

Some are optimistic however, with the multi-billion-dollar stimulus package from Beijing beginning to take effect. The flames of optimism were fanned with recent reports there has been a spike in the purchasing of crude oil and other raw materials within China.

But analyst Ziemba agrees with cautious Chinese officials who are saying the worst is not necessarily over.

"I would be cautious assuming that it will continue to pick up at the same pace as it has been, we could see China reducing demand for crude oil as China faces a transition," she said.

In China's closely watched financial roller coaster, positive indicators are quickly followed by the release of less encouraging news. The economy slowed to 6.1 percent growth from the same time last year, but still beat forecasts by some private sector economists.

To combat further decline in growth, Beijing is encouraging Chinese citizens to spend more to help shore up losses from the damaged export business. In some sectors such as car sales, the Chinese have begun to consume more than ever before. But the incentive to spend is still relatively low for a nation of savers.

"Households have a real incentive to save because there continues to be holes in the Chinese social safety net," said Ziemba. "For example with unemployment benefits, social security benefits, which are quite small. And the cost of health care. "

Ziemba identifies this as an area for improvement as China has just 10 percent of the massive stimulus plan dedicated to social welfare.

"I think the Chinese government is determined to roll out policies in the tough external environment that China will face," she said.

In the coming months the country will be focused on increasing at-home spending to make up for losses overseas. Though China is equipped to stave off the downturn in the short term, the rapidly developing country is as dependent on global consumers as the global economy is dependent on China.