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China: It’s the Year of the Draggin’

5 reasons you should think twice about investing in Asia in 2012

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Auto Sales

For all the bluster about China’s rapidly growing auto market — the People’s Republic supplanted America as the leader in global vehicle sales back in 2009 — it must be noted that this growth could be running out of gas.

Yes, China’s total auto sales topped 18.5 million in 2011 vs. 12.8 million in America for the same year. But the growth was a meager 2.45% in China for 2011 — compared to a roughly 10% jump in American auto sales. What’s more, U.S. vehicle sales are forecast to grow another 10% to 15% in 2012, while China has another rather anemic growth forecast ahead.

In short, the lion’s share of the auto sales growth in China might already be realized.

Of particular concern is the decline in high-end vehicle sales, with big margins and big profits for manufacturers catering to Chinese elite. Lamborghini recently said sales of ultra-luxury sports cars may slow in 2012. That’s not just a discouraging sign for the auto industry; it could be a hint of future troubles for a host of industries that have relied on China’s free-spending ways — from Macau casino operators like Wynn Resorts (NASDAQ:WYNN) to luxury retailers like Tiffany & Co. (NYSE:TIF).

Manufacturing Slowdown

Beyond the indications for Chinese consumers, the auto industry’s slowdown also is an indicator of trouble on in the mighty manufacturing sector of China.

The closely watched HSBC Purchasing Manager’s Index for China rose in February, but remains at levels that still hint at a modest contraction in the sector. Even worse, underlying data showed a weakening in new export orders — meaning weakness in future readings is likely, too.

Specifically, the flash estimate for HSBC’s February PMI in China was 49.7 on a 100-point scale, up from 48.8 the previous month. Anything less than 50 marks a decline, and anything above 50 signifies growth — so the decent rebound still wasn’t enough to push the index into encouraging territory.

This was despite a positive reading in new orders last month. So it’s very likely to expect a stumble in the HSBC reading next time around now that new orders for February are on the decline. If the PMI report holds, February’s contraction will be the fourth consecutive month of declines.

Foxconn and Worker Unrest

Perhaps even more of a threat to the nation’s economy is a growing backlash from workers in China’s big cities as employees demand better conditions and better pay.

Take the very recent and very public move by Foxconn — a top Apple (NASDAQ:AAPL), Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ) supplier — to announce a 25% increase in worker wages. That change, however, amounts to a new monthly paycheck of about $350 for most workers, compared with $286 a month. There also are moves to provide support and better working conditions after a staggering 14 Foxconn workers committed suicide in 2010 alone.

Article printed from InvestorPlace Media,

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