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China's manufacturing output slows in wake of cash crunch China's manufacturing output slows in wake of cash crunch
(3 months later)
China's vast manufacturing output slowed in June, painting a gloomy picture for growth as the country emerges from its worst cash crunch in at least a decade.China's vast manufacturing output slowed in June, painting a gloomy picture for growth as the country emerges from its worst cash crunch in at least a decade.
The official purchasing managers' index (PMI), an important gauge of manufacturing activity, fell to 50.1, down from 50.8 in May. With 50 being the point that separates expansion from contraction, the figures showed growth in the sector had slowed to a near standstill.The official purchasing managers' index (PMI), an important gauge of manufacturing activity, fell to 50.1, down from 50.8 in May. With 50 being the point that separates expansion from contraction, the figures showed growth in the sector had slowed to a near standstill.
The last time the reading fell below 50 was in September. "The Chinese economy is still struggling at the bottom," said Haibin Zhu, the chief China economist of JPMorgan in Hong Kong.The last time the reading fell below 50 was in September. "The Chinese economy is still struggling at the bottom," said Haibin Zhu, the chief China economist of JPMorgan in Hong Kong.
In a second report also released on Monday, Markit and HSBC said their PMI hit a nine-month low of 48.2 in June, down from 49.2 in May. The measure is based on a survey of more then 420 manufacturing companies, many of them small and medium-sized. The official figures focus on larger enterprises.In a second report also released on Monday, Markit and HSBC said their PMI hit a nine-month low of 48.2 in June, down from 49.2 in May. The measure is based on a survey of more then 420 manufacturing companies, many of them small and medium-sized. The official figures focus on larger enterprises.
Employment figures also dropped in June at the "fastest [rate] since last August, and joint fastest since the depths of the financial crisis in early 2009," according to HSBC.Employment figures also dropped in June at the "fastest [rate] since last August, and joint fastest since the depths of the financial crisis in early 2009," according to HSBC.
Manufacturing and exports have long been the main pillars of China's economy, and the figures suggest that both have taken a serious hit as a result of economic sluggishness both at home and abroad.Manufacturing and exports have long been the main pillars of China's economy, and the figures suggest that both have taken a serious hit as a result of economic sluggishness both at home and abroad.
For the first time since the Asian financial crisis in 1998, China is at serious risk of missing its official annual growth target, set at 7.5% this year.For the first time since the Asian financial crisis in 1998, China is at serious risk of missing its official annual growth target, set at 7.5% this year.
"The weak PMI reinforces our view that there is 30% chance GDP may drop below 7% in the third or fourth quarter," said Zhiwei Zhang, the chief China economist at Nomura in Hong Kong."The weak PMI reinforces our view that there is 30% chance GDP may drop below 7% in the third or fourth quarter," said Zhiwei Zhang, the chief China economist at Nomura in Hong Kong.
China's GDP grew by 7.7% in the first quarter of 2013, down from 7.9% in the previous quarter and far below an average growth rate of 10.5% over the past decade.China's GDP grew by 7.7% in the first quarter of 2013, down from 7.9% in the previous quarter and far below an average growth rate of 10.5% over the past decade.
The World Bank cut its growth forecast for China last month, saying that it would likely grow 7.7% in 2013. It had earlier predicted 8.4%.The World Bank cut its growth forecast for China last month, saying that it would likely grow 7.7% in 2013. It had earlier predicted 8.4%.
Demand for Chinese products remains weak in Europe and the US, China's two main export markets.Demand for Chinese products remains weak in Europe and the US, China's two main export markets.
China's central bank moved to slow rampant credit growth last month by refusing to inject liquidity into the country's financial system, causing inter-bank lending rates to spike.China's central bank moved to slow rampant credit growth last month by refusing to inject liquidity into the country's financial system, causing inter-bank lending rates to spike.
Bloomberg called the event the "worst cash crunch in a decade".Bloomberg called the event the "worst cash crunch in a decade".
Analysts said that by allowing the liquidity crisis to unfold, Beijing had shown itself willing to sacrifice some growth for a more stable financial system.Analysts said that by allowing the liquidity crisis to unfold, Beijing had shown itself willing to sacrifice some growth for a more stable financial system.
China's president, Xi Jinping, said on Saturday that local officials should never be judged "simply by the growth of gross domestic product," the state newswire Xinhua reported signalling that the highest level leadership would not respond to slower growth with more stimulus.China's president, Xi Jinping, said on Saturday that local officials should never be judged "simply by the growth of gross domestic product," the state newswire Xinhua reported signalling that the highest level leadership would not respond to slower growth with more stimulus.
The cash crunch "is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for [small and medium enterprises]," HSBC's co-head of Asian economic research Hongbin Qu said in a commentary accompanying the bank's report. "As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months."The cash crunch "is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for [small and medium enterprises]," HSBC's co-head of Asian economic research Hongbin Qu said in a commentary accompanying the bank's report. "As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months."
Signs have emerged that the country's banking system is regaining its equilibrium, but although inter-bank lending rates have dropped over the past week, they remain significantly higher than before the cash crunch began in late May.Signs have emerged that the country's banking system is regaining its equilibrium, but although inter-bank lending rates have dropped over the past week, they remain significantly higher than before the cash crunch began in late May.
"The tight liquidity condition on the interbank market has been easing in the last few days," chairman of the China Banking Regulatory Commission Shang Fulin said on Saturday, according to Bloomberg."The tight liquidity condition on the interbank market has been easing in the last few days," chairman of the China Banking Regulatory Commission Shang Fulin said on Saturday, according to Bloomberg.
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