On WSJ: China Manufacturing Gauge Slows
- China Manufacturing Gauge Slows
By AARON BACK
BEIJING—One gauge of manufacturing activity in China showed continued expansion in April, though at a slower pace.
The HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to 55.4 in April from 57.0 in March, HSBC Holdings PLC said Tuesday.
The decline in April's PMI reading followed a rise in March, though it was still the 13th consecutive month in which the PMI reading has been above 50, indicating expansion. A reading below 50 indicates a contraction.
On Saturday, the China Federation of Logistics and Purchasing said China's official Purchasing Managers Index, which the government issues with the National Bureau of Statistics, rose to 55.7 last month from 55.1 in March, though a high reading on input prices indicated inflationary pressure could be building.
"April's PMI points to a moderate slowdown in the expansion of manufacturing activity," HSBC's chief economist for China, Hongbin Qu, said in a statement. "We see this as good news because it means that Beijing's policy tightening is starting to cool the overheated economy, which will help to contain inflationary risk in the coming quarters."
But other economists felt it would be premature to declare a policy-induced slowdown. "There's no clear evidence yet that things are slowing down," said Royal Bank of Canada economist Brian Jackson.
"The PMIs for April showed that the risk of economic overheating exists in China. However, it is still too early to tell how serious the risk is," said Xing Ziqiang, an economist at Chinese investment bank CICC.
In Beijing's latest action to curb inflation and surging property prices, China's central bank on Sunday announced it was ordering banks to set aside more of their deposits on reserve for the third time this year.
China slowdown?
Of course a randomly favourite article Will China crash economically? ( I really need to paste this here else I be said to be biased. :P )
ps... they are all wrong. they simply love to bash China.
- CHINA bashing by now must surely be the most popular sport among Western investors, mass media and institutions. China crashing now, China crashing a few years later, China crashing anytime and crashing forever is the mantra.
A mantra is like a hymn. If you chant it endlessly and repeatedly, it gets stuck in one’s head. However, the fact that it may get stuck in one’s head does not mean that it will happen or that it represents the reality.
In fact, a mantra based on superfluous analysis or worse, an inherent bias, would block the real realities from surfacing. An objective analysis of the global economic conditions would show that this is what is actually happening.
With all the high profile, high publicity given to China bashing, all eyes are centred on China in general and its property sector in particular. Will China crash? When will China crash? i Capital’s managing director gets these questions all the time.
In contrast to all the dire predictions about China, i Capital expects China’s economy to nicely soft land this year. When the Lehman Panic broke out in September 2008, and almost collapsed the world economy, China was ahead of every other economy in implementing economic expansion measures.
China very quickly bottomed out and pulled the global economy out of its worst conditions (which, of course, no Western country has given China any credit). While the US led the world economy into possibly the worst recession in a long time, China and the rest of Asia quickly pulled the world economy out of a US-created catastrophe (see charts).
As China’s economy recovered quickly and strongly, the Chinese government has subsequently acted very quickly and effectively again. Measures to cool the hot property sector down have already been announced months ago.
China’s government is ahead of the property “bubblet” curve. However, it takes time for the impact to be felt, which is expected to take place in the coming months.
Selected segments of the property sector will cool down but the rest of the economy will still be performing well. China’s economy is huge and a cooling of the property sector will not crash the continental economy.
The decision by The People’s Bank of China not to raise interest rates so far is correct. Why kill the rest of the economy when there is no need to? There are many other effective ways to tackle the property “bubblet”, especially when the cause of the rise in property prices is not low interest rates.
Another unnoticed development that favours China soft-landing this year is that the current global economic recovery is not synchronised. The recovery in the United States is behind that of China and the rest of Asia but it is gathering momentum.
The growth in US exports and the recovery in the industrial sector have led the US recovery. Consumer spending is also recovering and will gather momentum as the US job market improves further. The US housing sector is also expected to contribute positively this year.
As 2010 progresses, the US economic recovery will play a greater role in global economic growth. This is ideal, as it will allow China to turn to other economic sectors for growth while it tackles its property bubblet.
In short, as the US economic recovery gathers momentum in 2010, China’s GDP growth would slow to a healthy, high single-digit rate.
Based on the economic outlook of the United States and China, i Capital sees a benign global economy. Unlike 2006 or 2007, 2010 will see a healthy unsynchronised global recovery. This upbeat view can, of course, be turned topsy-turvy by unexpected events. There seems to be plenty nowadays.
One, while the currency pressure on China seems to have reduced somewhat, the United States is now cleverly turning to other countries and US-dominated global institutions to crack China’s position. Apparently, even India and Brazil are now joining in the bandwagon as prominently headlined on the front page of the Financial Times.
So, although the currency pressure cooker is not boiling over for now, the threat of a trade war needs close watching.
Is China crashing the real worry? Or is the eurozone breaking up the real worry? Actually, an economy that has crashed but that has not been described in this way is the eurozone a.k.a a continent of discontent.
First, it was the PIGS (Portugal, Ireland, Greece and Spain). The budget deficit for Iceland is 14.3%, Greece 13.6%, Spain 11.2%, Portugal 9.4% and China 2.2%. The China bashers say that China’s budget deficit is actually higher because it does not include the local governments. We wonder why the clever Greeks did not think of this simple trickery.
Anyway, the Greek civil servants are on strikes and the budget deficit is running at unsustainable levels. No wonder the Greek economy is not in a sustainable mode. This continent of 35-hour working week but with wages paid equivalent to 350-400 hours of work in China or India is declining fast, faster than what is generally realised or acknowledged.
Greece, supposedly the birthplace of democracy, has transformed itself into a “debtmocracy”. Will China crash, as we all are led to believe, or will Greece be the Sword of Damocles for the eurozone and thus the global economy?
Then, as if Greece et al is not enough, as if an evil spell has been cast on Europe, we all discovered that cash-starved Iceland is actually rich with ashes. Imagine Iceland, more than 1,800km away from London and more than 2,100km away from Germany, taking revenge on the eurozone. Who would imagine that?
The hiatus caused by the volcanic eruption is not small. That a volcano from Iceland is causing so much havoc in the eurozone is symbolic of the very difficult period that this fledgling economic bloc is undergoing.
Almost every economy in the eurozone, including that of the United Kingdom, is in trouble. As i Capital wrote above, this is the reality, this is what is actually happening.
China and the rest of Asia are not crashing. The United States crashed and the eurozone has crashed. Should the East follow the West?
i Capital does not think so although there are many out there who would want to see this happening.
Once again, we have to say, In China We Trust. As i Capital advised previously, “This decoupling is here to stay.
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