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China Reports Increase in Manufacturing China Reports Increase in Manufacturing
(about 3 hours later)
HONG KONG — A manufacturing index published by the Chinese authorities on Thursday provided an unexpectedly solid reading for July but did little to dispel the picture of an economy that has left the days of double-digit growth well behind it. HONG KONG — A manufacturing index published by the Chinese authorities on Thursday provided an unexpectedly solid reading for July but did little to dispel the picture of an economy that is cooling more rapidly than many analysts had expected just months ago.
The reading, published by the National Bureau of Statistics, edged up slightly, to 50.3 from 50.1 in June, indicating that recent small-scale economic support measures announced by the authorities in Beijing may be having some effect on demand. The reading, published by the National Bureau of Statistics, edged up slightly, to 50.3 from 50.1 in June, indicating that recent small-scale economic support measures announced by the authorities in Beijing might be aiding some parts of the economy.
The slight increase confounded analyst expectations that the index would slip below the 50-point mark that separates expansion from contraction. The slight increase confounded analysts’ expectations that the index would slip below the 50-point mark, which separates expansion from contraction.
Underlining the lingering malaise within the world’s second-largest economy, however, a separate manufacturing activity gauge published by the British bank HSBC came in at an eleven-month low of 47.7. The figure, which was unchanged from the initial reading published last month, highlighted the tough domestic and international demand that many Chinese companies are confronted with. Underlining the lingering malaise within the Chinese economy, however, a separate manufacturing activity gauge published by the British bank HSBC came in at an 11-month low of 47.7. The figure, which was unchanged from the initial reading published last week, highlighted the tough environment that many Chinese companies still face. That goes especially for the small and privately owned companies — many of them exporters that are struggling with sluggish demand and a stronger renminbi — that are more heavily represented in the HSBC survey.
“With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment,” said Qu Hongbin, chief China economist at HSBC, in a statement accompanying the release. “With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment,” Qu Hongbin, chief China economist at HSBC, said in a statement accompanying the release.
On the upside, he noted, the string of recent weak data has prompted Beijing to introduce more targeted support measures, which “should boost confidence and reduce downside risks to growth.” And economists at Australia & New Zealand Banking Group wrote in a note that the improved state index “doesn’t change our overall assessment of the deteriorating economy.”
The leadership that took the helm in Beijing in March has been insisting that the slowdown is not only desirable — as part of their efforts to rein in excessive lending and bring about more balanced growth — but also stable and sufficient to meet its target of 7.5 percent this year. Many analysts caution that Beijing’s efforts to stem often opaque and unregulated lending activities outside the formal banking sector — while welcome — are likely to dampen economic activity. Slowing growth, meanwhile, could undermine the ability of some borrowers to service their debt, potentially leading to defaults and bankruptcies further down the line.
In a report published Thursday, for example, Standard & Poor’s warned that many of the weaker players in the property sector — a key pillar of the Chinese economy, the world’s second-largest after that of the United States — “could find it more difficult or costly to borrow this year if the central government takes further steps to rein in ‘shadow banking’ activities,” which it said were a major source of funding for developers that could not secure bank loans.
On the upside, Mr. Qu of HSBC noted, the string of recent weak data has prompted Beijing to introduce more targeted support measures, which he said “should boost confidence and reduce downside risks to growth.”
The leadership that took the helm in Beijing in March has been insisting that the slowdown is not only desirable — as part of its efforts to rein in excessive lending and bring about more balanced growth — but also stable and sufficient to meet its target of a 7.5 percent economic growth rate this year.
But it has also prescribed a steady stream of small-scale, targeted support measures in a bid to ensure that growth does not cool too rapidly.But it has also prescribed a steady stream of small-scale, targeted support measures in a bid to ensure that growth does not cool too rapidly.
These have included tax cuts for small and micro enterprises and measures aimed at speeding up railway construction in inland and poor areas. In a bid to raise the economy’s overall efficiency the authorities have also issued instructions to more than 1,400 companies in 19 industries to cut excess production capacity this year. Those have included tax cuts for small businesses and measures aimed at speeding up railroad construction in inland and poor areas. In a bid to raise the economy’s overall efficiency, the authorities have also issued instructions to more than 1,400 companies in 19 industries to cut excess production capacity this year.
Meanwhile, the central bank on July 19 said it would no longer set a minimum interest rate for corporate loans – a symbolically important first step toward wider interest rate liberalization. Meanwhile, the central bank said July 19 that it would no longer set a minimum interest rate for corporate loans — a symbolically important first step toward wider interest-rate liberalization.
“All of these things amount to a small-scale stimulus,” said Dariusz Kowalczyk, a senior economist and strategist at Crédit Agricole in Hong Kong. These steps, combined with more fine-tuning moves that are likely to follow in the next few months, are likely to lift economic growth to just above the official 7.5 percent growth target this year, Mr. Kowalczyk said. “All of these things amount to a small-scale stimulus,” said Dariusz Kowalczyk, a senior economist and strategist at the French bank Crédit Agricole in Hong Kong. Those steps, combined with more fine-tuning moves that are likely to follow in the next few months, are likely to lift economic growth to just above the official 7.5 percent growth target this year, Mr. Kowalczyk said.
“The new leadership cannot afford politically to miss that target during their first year,” he said, adding that he expected moves aimed at spurring consumer demand, such as subsidies for big-ticket items or consumption-tax cuts, as well as a modest depreciation in the renminbi in the coming months. “The new leadership cannot afford politically to miss that target during their first year,” he said, adding that he expected moves aimed at bolstering consumer demand, like subsidies for big-ticket items or consumption-tax cuts, as well as a modest depreciation in the renminbi in the coming months.
Beijing’s approach to supporting growth this year has been markedly different to that adopted in late 2008 and 2009. Back then, the authorities prescribed a powerful, big-bang stimulus program and loosened the reins on bank lending. Those moves helped China bounce back quickly from a sharp downturn set off by the global turmoil.
But they also helped cause property prices in many Chinese cities to soar, and set off a big rise in local government and corporate debt levels — unpalatable side effects that the new leadership is now working to reverse.