While China’s emerging market sectors continue to benefit from an inflow of capital from an appearance standpoint, two major economic indicators revealed that the country’s manufacturing sector had eased up more in June than had been forecast by economists.
According to Bloomberg, the Purchasing Managers’ Index (PMI) released on July 1 by the China Federation of Logistics and Purchasing (CELP) and the Beijing-based National Bureau of Statistics (NBS), fell to 52.1 in June, down from 53.9 in May. The indicator covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.
The report also said that the June PMI for China from the Hong Kong and Shanghai Banking Corporation (HSBC), compiled by the U.K.-based research firm Markit Group Ltd, covers more than 400 manufacturing companies and is weighted more toward smaller, privately owned businesses than the regime’s PMI. The HSBC measure fell to 50.4, down from 52.7 in May.
According to investopedia.com, a PMI of above 50 is an indication of expansion in the manufacturing sector, compared with the previous month, while below 50 indicates contraction. The PMI data is based on five major measures: new orders, inventory levels, production, supplier deliveries and the employment environment.
Caijing reported that China’s 15 months of rapid expansion for manufacturing activity concluded in June, when new output and new orders dropped heavily for the first time, since the bottom of the global downturn in March 2009.
Qu Hongbin, HSBC’s chief economist for China, told Caijing, “The moderation in the manufacturing PMI implies slower sequential growth in China’s manufacturing sector, partly due to the tightening measures taking effect. But fears about a hard landing are overplayed.”
The Wall Street Journal reported that after the two PMI indexes were issued on Sunday, China’s Wen Jiabao said that the country’s economic policies “face increasing dilemmas,” because the impact of the global financial crisis is more serious than had been anticipated. But he reiterated that China would continue its economic policies while increasing flexibility, in order to “solve current significant and urgent problems.”
Zhou Xi, a strategist at Bohai Securities Co., told Bloomberg, “There hasn’t been a change in the government’s tightening stance. The economy is slowing and pressure on profits will begin to grow.”
Singapore-based BRIC Investors reported that economists believe China’s economic growth will slow up a bit for the rest of this year. This is due to a number of factors, including the effect of the slower or stagnant economic growth in Europe and the United States, as well as Chinese governmental restrictions on lending and real estate.
Offical media, People’s Daily commented that the market shouldn’t be too startled at declines in major economic indicators such as the PMI, as it should prove an effective correction to offset the risk of the economy overheating. “What the market is saying is that if Beijing’s macroeconomic policy proves not to be working, the good times could be over and the China story of a solid recovery is going to end: with a hard landing.”
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