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China's factory activity slows

  • China's official manufacturing PMI fell to 51 in December from 51.4 in November and missed consensus of 51.2.
  • New export orders shrank for the first time since July, with the sub-index dropping to 49.8 from 50.6, indicating a softening of foreign demand.
  • Manufacturing employment declined to 48.7 from 49.6.
  • "Domestic and overseas demand was weaker than expected," says economist Li Heng. "Domestically, tight liquidity is weighing on factory output and orders," Heng added. "The economy is under some downward pressures but the slowdown remains modest...We think Q4 GDP growth should be 7.7% and the same for Q1 2014." (PR)
Comments (2)
  • Brian Bobbitt
    , contributor
    Comments (1905) | Send Message
    Just a downdraft. When flying high, some turbulence is expected. I don't invest in Chinese stocks if I can help it, but seems they are on track. But the only people who don't have trouble are in Forest Lawn.
    Capt. Brian
    The Lost Navigator
    1 Jan, 10:47 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1538) | Send Message
    Announcements such as this seem to miss the fact that China's GDP will be determined based upon whatever level of spending the Chinese government decides upon. As such, I find them to be about as meaningless as an announcement by Bernie Madoff that there has been a fluctuation in the reported earnings of his hedge fund. I find it equally absurd that anyone would then ponder how such a fluctuation could affect reported earnings for the year.


    What I believe to be far more relevant are credit market conditions in China. For example:


    How much more debt is being issued to fund these managed spending levels?


    What is the nature of this debt (e.g., does it still consist primarily of short-term high-yield money market accounts that banks largely exclude from their balance sheets)?


    Are Chinese banks still reporting large increases in Non-Performing Loans (NPL's) even though they have found ways to remove many of their bad loans from their balance sheets through creative accounting and/or sales to "bad banks" such as Cinda Asset Management (the largest IPO on the Hong Kong stock market this year)?


    Do Chinese state-owned banks continue to merely roll over loans that were known to have soured years ago?


    How many more loans are subject to this "extend and pretend" rollover procedure?


    Are interest rates on overnight loans between banks that don't entirely trust each other still at escalated levels?


    Are Chinese interest rates in general still climbing even after they have reached their highest levels in years?


    Are Accounts Receivable, particularly among non-state-owned companies, continuing to soar even though many of these companies have also found ways to shed their bad loans onto "bad banks" such as Cinda?


    How many other non-public bad banks are springing up in China and Hong Kong?


    Is the PBOC continuing to print massive amounts of money (M2 now equals $18 trillion, and the PBOC's balance sheet has swollen to $6 trillion, which is now 50% larger than the US Federal Reserve's), in an effort to avoid a day of reckoning for China's credit markets?


    How is all this money printing by the PBOC, which also accounts for 40% to 50% of the growth in the global money supply since 2008, affecting global interest rates and prices for capital assets?


    Can global economic growth be sustained indefinitely by increased debt and increased money-printing?


    When will demand catch up with the surplus capital, surplus labor, and surplus productive capacity that currently exists around the globe?


    Will efforts by foreign companies seeking to tap into China's potentially large domestic markets continue to be thwarted by Chinese government policies such as "local content requirements" that force foreign companies to turn over their intellectual property and know-how to local companies who then produce five times the requested output so they can supply identical goods to Chinese copycat companies who then receive further government subsidies in order to capture a larger share of existing foreign markets rather than expanding the size of global markets by opening opportunities within China?


    If domestic consumer spending in China was to grow as a percentage of China's economy, this would do little to absorb the excess capacity that exists in many industries subject to over investment based upon Chinese government-led spending decisions, such as steel and cement, so how would such a critical rebalancing of China's economy away from excess Fixed Asset Investment spending prevent loans made to finance such excess capacity from going bad?
    1 Jan, 02:23 PM Reply Like
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