Chinese factory activity contracts at faster pace

China's flash manufacturing PMI has tumbled to a seven-month low of 48.3 in February from 49.5 in January and missed consensus of 49.4.

Manufacturing Output Index dropped to 49.2 from 50.8.

The sub-indexes for new orders, new export orders and employment contracted.

"The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening," says HSBC.

The faster contraction of PMI adds to other data that provides a mixed picture for China's economy, although the latest figures may have been hampered by the Chinese New Year.

The Shanghai Composite is -0.2%. (PR)


This was corrected on 02/20/2014 at 02:27 AM.
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Comments (6)
  • nofrills
    , contributor
    Comments (7) | Send Message
    Don't forget for most factories from Jan-25 till Feb-14 is in holiday mode, how the PMI data from
    20 Feb 2014, 02:37 AM Reply Like
  • papita
    , contributor
    Comments (427) | Send Message
    another day, another number from China. How will the media report this one? One day up, one day's too much information.
    20 Feb 2014, 07:24 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1869) | Send Message
    "The subindex for manufacturing output also hit a seven-month low, while the employment gauge showed a faster decrease than in the previous month to reach its weakest level since 2009.


    The new-orders component swung to a decrease as well, with new export orders also showing a decline, though at a slower pace than in January. Both input and output prices also fell at a quicker rate."
    20 Feb 2014, 07:33 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1869) | Send Message
    Although China's recently released credit data in the aggregate showed no let up in the demand for credit, there was a pronounced decrease in corporate loans which is consistent with the declines in manufacturing activity and other data cited above.


    Some may blame the slowdown on the Fed's tapering of its QE program, and the fact that so many emerging market countries have chosen to expose themselves to US monetary policies by pegging their currencies to the dollar [their decision not ours] but money printing by the PBOC far exceeds that attributable to the Fed, and the Fed's QE has only resulted primarily in increased bank reserves while the PBOC has caused China's M2 money supply to soar--at $18 trillion it is 225% of their GDP while US M2 is only $10 trillion, representing about 80% of US GDP which is also more stable since it is not as reliant China's economy is upon exports or unsustainable levels of Fixed Asset Investment spending that now accounts for 50% of China's GDP. [See the BBC Two special "How China Fooled the World" for more perspective on that.]


    As the CCP attempts to rein in its out of control of Fixed Asset Spending and the shadow banking channels through which it has been financed [often referred to politely as an effort to rebalance its economy] this results in a slowdown of commodity demand in terms of both volume and prices, and that is directly and indirectly causing a slowdown in the economies of many other emerging market countries and of those heavily dependent upon exports. The ability of central banks in those countries to maintain their high levels of money printing is constrained by the inflation this may cause against a backdrop of slower economic growth.


    However, that's not the case for Japan which is battling deflation and its QE program, equal to that of the US Fed's despite the fact that its GDP is less than half that of the US, has resulted in a sharp decline in the value of the Yen. This is expected to boost their exports at the expense of China [and South Korea, even Germany] which puts further downward pressure on the economies of other countries.


    However, Japan may not be able to sustain their currency depreciation policy forever if they continue to rely so heavily on imported fossil fuels post-Fukushima. This could be addressed if China was successful in its effort to commercialize a newer, safer, thorium- based nuclear energy technology developed at Oak Ridge National Labs in the US during the 1960's, but they would still be reliant upon China for rare earths that are critical to the types of products that Japan exports [cars, consumer electronics, and many other high tech products] and tensions between Japan and China have escalated.


    It is virtually impossible to predict how these potential developments could play out over the longer term. In the meantime, I would expect slower economic growth among emerging market countries and lower commodity prices that can be beneficial to developed countries. But, i would also carefully monitor whether this slower emerging market economic activity and reduced money printing by central banks of those countries could have greater than anticipated spillover effects on developed countries which could be deflationary in nature.
    20 Feb 2014, 08:26 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1869) | Send Message
    Although both Japan and China are attempting to commercialize thorium- based nuclear energy technology, in my comment above I meant to say if Japan [not China] is successful in commercializing this technology to wean itself from fossil fuel imports. For now China seems more content with accessing more secure sources of oil and natural gas from its Central Asian neighbors and by building a port in Pakistan that will allow oil and natural gas from the Middle East to be shipped to China by pipeline, thus bypassing the Malacca Strait which could serve as a potential chokehold. Japan does not have this option, so Japan's effort to develop a newer safer form of nuclear energy is much more urgent.
    20 Feb 2014, 08:38 AM Reply Like
  • omooc
    , contributor
    Comments (345) | Send Message
    I am grateful that SA provides this flash news on China's mfg activities from late Jan to mid-Feb 2014. I also felt that nofrills's calling attention to this period being the Chinese New Year is valuable. Indeed, as the article itself provided a link on this (tabbed as "have been hampered"), I read it in its entirety. That link cited 4 financial analysts at 3 investment houses in US, all questioning the acceptabilty of HSBC's PMI data. Though seasonal adjustments were said to have been included in these HSBC data, given that the Chinese New Year varies from year to year (in 2013, the Chinese New Year's day was about 2 weeks later than 2014's), I would indeed question the quality of this so-called seasonal adjustment, when the season itself is a variable. At the risk of annoying papita, who complained about having too much data, I recommend that interested readers read the link I mentioned and cited in the original article.
    20 Feb 2014, 10:37 AM Reply Like
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