Monitor | The engine's revving, but the gearbox is stuck in neutral
Mainland's economic growth in the first quarter was softer than expected despite trillions of yuan of new funding in past six months
Yesterday HSBC released its "flash" purchasing managers index for Chinese manufacturers in April.
That sounds arcane, I know, but the news was bad. The index, which is widely recognised as one of the better leading indicators of Chinese economic activity, slipped back this month, when most analysts had been expecting it to rise.
Coming on top of news that China's economic growth in the first three months of the year was weaker than expected, the soft PMI number was especially discouraging.
That's because economists had been looking for a pick-up in activity to reflect the record 10 trillion yuan (HK$12.4 trillion) of new funding extended by China's financial system over the last six months (see chart).
Normally you would expect some time lag between an increase in credit creation and a resulting acceleration in economic growth. It generally takes a few months as companies borrow and invest, and for the benefits to show up in increased consumption by their workers.