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A year ago, China’s industrial sector looked like it was going to be safe from the repercussions of the credit crisis that was beginning to engulf the US. But today the picture is far less rosy. While most analysts predicted the Asian nation’s growing internal demand would more than compensate for any falloff in the export economy, the much larger falloff than expected combined with growing numbers of unemployed make it virtually impossible for the domestic market to make up for the loss of overseas business.

According to the China Container Ports Review 2009 from Paris-based AXS-Alphaliner and Liner Research Services, China’s 10 largest ports saw throughput volumes fall by 13.9% in January, compared with the same period a year ago. Though overall figures for last year were up as much as 20% at some ports, volumes began to plummet in Q4. Hong Kong’s container volumes, for example, fell by 13.2% in November and 15% in December. The report projects Chinese ports will handle 115 million 20-Foot Equivalent Units (TEUs) in ’09, down from 126 million TEUs last year. To make matters worse, the report warns that expansion projects in progress at every major Chinese port could produce an excess capacity of 35 million TEUs by the end of next year.

Air cargo volumes are also off. Hong Kong Air Cargo Terminals Ltd. began seeing volume declines in midyear, and the International Air Transport Association says air freight in the wider Asia Pacific region fell a record 23% in January. On top of this, the Chinese Purchasing Managers Index’ survey by Hong Kong-based CLSA fell below 50 in September for the first time since its inception in the early ’90s and has remained in the upper 40s since. A measure below 50 indicates the manufacturing sector is contracting.

According to the most recent Asia Pacific Industrial Market Overview from Colliers International, from March to August, the rate of rent and capital value growth for the region’s manufacturing industry began to fall compared to preceding periods. The biannual report covers 12 cities in eight countries. “Many factories in the southern part of China are suffering from the problem of short-term cash flow,” says Wayal Chiu, director of industrial services in Colliers’ Hong Kong office. “The prevailing credit crunch further reduces the confidence of manufacturers, who either refuse or are reluctant to take new orders.”

In the investment market, Colliers reports the number of sale transactions for China and Hong Kong declined 30.2% compared with the preceding six-month period. It says industrial rents and capital values could decline by an average of 12% monthly throughout ’09 if the overall economic environment continues to deteriorate. At the same time, the company says sustained demand for quality warehouse premises generally supports warehouse rental performance.

“Relatively speaking, the warehouse market is expected to be one of the most resilient industrial property sub-sectors amid the prevailing financial turmoil,” says Simon Lo, director of research and advisory at Colliers Kong Kong. “As such, rents for warehouses with ramp access and cargo lift access are forecast to see a milder decline…in the next 12 months compared to those for factory premises.” He says capital values, on the other hand, are forecast to decline by 8% for warehouses with ramp access and 10% for those with cargo lift access in the same time period.

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