• Fri
  • Dec 19, 2014
  • Updated: 9:50am

China factory sector still losing momentum, HSBC PMI shows

HSBC/Markit private survey says the segment contracted for the fourth straight month in April

PUBLISHED : Monday, 05 May, 2014, 10:01am
UPDATED : Tuesday, 06 May, 2014, 2:39am

Activity in the mainland's manufacturing sector last month contracted for a fourth consecutive month, a private survey showed yesterday, suggesting the world's second-largest economy is still losing momentum.

The final reading of the HSBC/Markit purchasing managers' index came in at 48.1, lower than a preliminary reading of 48.3 but up slightly from an eight-month low of 48 in March.

The figure has stayed below the 50 level, which separates growth from contraction, since the start of this year.

Output and new orders contracted last month, and new export orders slipped back into contraction after a recovery in March, the survey found.

"The latest data implied that domestic demand contracted at a slower pace but remained sluggish," said Qu Hongbin, the chief economist for China at HSBC.

"Meanwhile, the new export orders and employment sub-indices contracted and were revised down from the earlier, flash readings. These indicate that the manufacturing sector, and the broader economy as a whole, continues to lose momentum."

Qu said the government needed to take bold action to make sure the economy regained its momentum.

Last week, the mainland's official PMI rose to 50.4 from March's 50.3, indicating a slight expansion. The official PMI is weighted towards bigger and state-owned enterprises and tends to paint a rosier picture than the HSBC/Markit survey, which focuses more on smaller, private firms.

The services industry fared a little better, according to a separate official PMI released on Saturday, an encouraging sign in an economy that otherwise faces a cloudy outlook. The PMI for the services industry rose to 54.8 from 54.5 in March, the National Bureau of Statistics said.

The mainland's growth engine has lost steam in the past year, squeezed by lacklustre demand for exports and the government's push to cut its own investment in a bid to reshape the economy.

To prove the country has the mettle to enact painful reforms, Premier Li Keqiang said policy would not be loosened drastically to counter short-term dips in activity.

Growth slowed to an 18-month low of 7.4 per cent in the first quarter of this year. Economists in a Reuters poll expect growth of 7.3 per cent this year.


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In many western democratic countries, employment is an important concern, which is mainly supplied by the SMEs.
In many market economies, the governments seldom provide guarantee to the bank loans obtained by the big enterprises.
Instead, they usually give some risk warranty to the SMEs.
In China, the exact opposite is the case.
The Chinese government grants loan guarantee to the big enterprises, especially the SOEs.
For the SMEs, let alone guarantee, even the policy banks’ loans to them are restricted.
Perhaps the policy banks’ loan managers are not well qualified to assess the risk of those SME loans, or it’s too costly to do so.
To play safe, why not just lend to the SOEs, especailly if relationship is taken into account ?
Which means to obtain the loans they sorely need, China’s many SMEs have to pay very high interest rates in the shadow banking market, if they can ever obtain the loans at all.
In Shanghai, the local government even kicks out all the SMEs --- in the name of ‘generational replacement of products’ !
But there are at least 3 contributions to a society from the SMEs:
First, they provide many job opportunities.
Second, they bring about competition.
Third, the innovative ability of the big enterprises is relatively weak, they need to buy out some SMEs to boost their innovative power.
(From the Chinese book: How special is China’s model)
If you are still not convinced that the yuan's overvaluation has negatively affected the external competitiveness of China's exporting SMEs and hence the recent HSBC/Markit PMI data, you should read or revise once again the following article:
China's rising real wages, very high market interest rates, high rent and land prices, the other EM countries' competition, together with the West's zombie consumers (who are busy repairing their balance sheets, which takes time of course), are contributing factors as well.


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