Chinese PMI data paints mixed picture


As expected, Chinese official manufacturing PMI, which focuses on larger state-owned enterprises, edged up to 50.3 in March from 50.2 in February. (PR)

The HSBC index, which gives more weight to smaller private companies, slipped to 48 (flash 48.1) from 48.5. Output and new orders contracted at faster rates, although new export orders returned to growth. Input costs and output charges fell sharply.

HSBC says that its reading confirms the weakness of domestic demand. "This implies that 1Q GDP growth is likely to have fallen below the annual growth target of 7.5%. We expect Beijing to fine-tune policy sooner rather than later to stabilize growth," HSBC says. (PR)

The Shanghai Composite is +0.5%.

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  • Mike Holt
    , contributor
    Comments (1869) | Send Message
     
    The WSJ reported today that sales of Zoomlion fell 20% in 2013. Zoomlion is a large manufacturerer of construction equipment central to China's Fixed Asset Investment spending that accounts for almost 50% of their GDP.

     

    The article also reports that accounts receivable have soared to120% of revenues, and even though these receivable are typically sold to banks without recourse, some banks have held Zoomlion responsible for these account receivables and warned them to act more responsibly when selling equipment and then selling uncollectable account receivables to banks.

     

    So, an increase in manufacturing activity may reveal that China's debt problems are not being addressed, while a decrease in manufacturing activity may reveal that market forces are beginning to play a more decisive role in the credit markets that represent the real foundation for China's investment-led economic growth model. But, slowing manufacturing activity can also lead to slower economic growth, both in China and in many emerging market countries reliant upon exports to China.

     

    So, the real issue to watch is China's credit markets and banking system. Although their accounting and financial reporting procedures are hidden by smoke and mirrors that can mask irregularities, cracks in this foundation have still become apparent. And, eliminating the smoke and mirrors is another issue that needs to be adressed. Until then, even though we have become so desperate for economic growth, the addage "Don't Fight the Fed" may be synonymous with "Ignore that the Emperor Has No Clothes."
    2 Apr 2014, 08:19 AM Reply Like
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