International | Jul 01 2010
By Rudi Filapek-Vandyck
China's two manufacturing purchasing managers' surveys, both released today, delivered what many an investor was fearing in the lead up to both events: overall activity is slowing down. There simply is no two ways about it.
Add the leakage of some “news” from Chinese authorities that present policies aimed at cooling down property markets will remain in place, plus an official assessment that the outlook for Chinese exports is now “grim” and a picture emerges of an economy that is increasingly battling macro-headwinds.
Within this framework, it is probably appropriate to report I had the pleasure of watching an interview with Kingsley Jones, from Macquarie Funds Management, on CNBC Asia this morning. The standout statement made by Jones is that recent re-introduced flexibility for the renminbi was not aimed at pleasing US Congress, as widely assumed, but at countering an ever so cheap euro.
In other words: Chinese authorities are worried their commercial position in the country's largest export-market is deteriorating. Recent RMB flexibility should thus hand them the option of devaluing the RMB against the euro. (Watch the world scream "murder" if that were actually to happen).
As far as today's releases are concerned, both PMI surveys turned out weaker than expected with the private HSBC PMI index dropping to a 14 month low and with the “official” index from the China Federation of Logistics and Purchasing and the National Bureau of Statistics falling to 52.1 in June from 53.9 in May.
Economists had expected to see a number starting with 53.
The “official” release showed the output index fell to 55.8 in June from 58.2 in May, while the measure of new orders slid to 52.1 from 54.8 and the export-order index dropped to 51.7 from 53.8. The measure of input prices decreased to 51.3 from 58.9, the biggest fall in the 11 sub-indexes.
The index published by HSBC was down to 50.4 in June from 52.7 in May. In April, the index stood at 55.2. The conclusion drawn in today's press release probably says it all: “only a marginal improvement in Chinese manufacturing sector operating conditions”.
Another stand-out sentence in the HSBC release is: “Manufacturing output in China fell during June, ending a fourteen-month period of expansion. Although only marginal, the pace of contraction contrasted with near-record growth registered at the start of the year.”
Here's another one for the masochists: “For the first time in fifteen months, the level of new business taken by Chinese manufacturing firms fell in June.”
Note that this index is a 50-neutral index, meaning the HSBC index seems on the cusp of returning into negative territory, possibly next month?
Commenting on the June results of the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC was quoted as:
“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 hard-landing are overplayed. We expect China to achieve around 9% growth in 2H underpinned by massive ongoing investment and robust private consumption.”
