The second cut in China’s interest rates in three months reveals key elements in Beijing’s thinking as it tries to reconcile an economic policy agenda beset with conflicting priorities, analysts said on Monday.
The task before China requires some delicate manoeuvres. It aims to wean the country off an extraordinary debt binge (see Martin Wolf ) while keeping GDP growth fairly robust. It hopes to combat disinflationary pressures while preventing the renminbi from sliding too sharply against the US dollar. It wants to curb a dangerous slump in industrial profits without resorting to another round of investment pump-priming. It needs to keep domestic liquidity levels buoyant in spite of a surge in capital flight. Read more
By Frederic Neumann, HSBC
Things in China look a bit soggy. True, growth a touch above 7 per cent is nothing to sneer at. But it’s down sharply from days past. And as the Mainland matures, those double-digit growth rates seem even less likely to return. Where, then, to look for the next story of hyper-charged growth?
Plenty of promising places around: Sri Lanka will probably grow faster than China this year, and so could the Philippines, Vietnam and Bangladesh at some point. But, from a global perspective, these will hardly make a dent; certainly, commodity markets will not get terribly excited about accelerating demand from these markets. Read more
Guo Guangchang, an entrepreneur who claims inspiration from China’s oldest sages - as well as from the “sage of Omaha”, Warren Buffett – has topped an inaugural ranking of the wealthiest Chinese investors with a personal fortune estimated at $4.5bn.
Guo (above), 48, typifies the eclectic acquisitiveness of China’s emerging cohort of investors. His company, Fosun International, this month won the longest takeover battle in French history by beating Italian investor Andrea Bonomi to take control of Club Méditerranée, the vacation organiser, after a 16-month wrestling match. Read more
A severe slump in Russia and ebbing momentum in China contributed to an overall subdued performance for manufacturers across emerging markets (EM) in December last year, according to a compilation of data published on Tuesday.
The overall purchasing managers’ index (PMI) reading for EM manufacturing edged down from 51 points to 50.9 points in December (see chart), according to a Capital Economics compilation of data collected by Markit, the research company. The number suggests that while EM manufacturing activity is still expanding, the pace of that expansion is slowing. Read more
By Hayden Briscoe, Shamaila Khan and Jenny Zeng, AllianceBernstein
Based on insights from our team’s recent trip to China, we noted that the country is likely headed for a long economic landing. What does that mean for its infrastructure and commodity sectors? Read more
Can China innovate its way out of a prolonged economic growth slowdown? Shaun Rein, managing director of the China Market Research Group, believes so. In his new book, “The End of Copycat China – The Rise of Creativity, Innovation and Individualism in Asia”, he argues that China will start innovating now because it has to – and that it didn’t before simply because it didn’t need to. That’s an interesting theory, but is he right?
Rein first does battle with common perceptions that the Chinese political system or culture limits its ability to innovate. It’s not because China is a communist-led country with limited individual freedom, that it does not come up with corporate inventions, he says. Read more
Unofficial readings on China’s industrial activity released on Thursday add to a sense that the underlying economic vibrancy of the world’s second largest economy may have continued its ebbing trend into October.
This may surprise those who bought into the notion that industrial output rebounded strongly in September, rising to 8 per cent year on year, up from 6.9 per cent in August. In fact, though, that September “rebound” was largely the result of a big statistical base effect, according to China Confidential research.
Similarly, the announcement on Thursday of a pick up in HSBC/Markit’s manufacturing Purchasing Manager’s Index (PMI) to 50.4 in October so far – up from 50.2 in September – is misleading. In fact, readings on manufacturing output and new orders – the key measures of industrial vibrancy – revealed markedly weaker trends. Read more
A closely-watched indicator of economic activity in China is showing an unexpectedly robust reading for September, according to an announcement on Tuesday. But is a real growth rebound underway, following several signs of a slowdown in the third quarter so far?
Hong Kong stock market investors appeared to reserve judgement, allowing the Hang Seng index to slip 0.49 per cent, or 118 points on Tuesday to 23,837. Economists and other survey-based indicators of Chinese economic activity reinforced the skepticism. Read more
There is more gloomy news for the world’s second largest economy. A comprehensive official survey of Chinese households, businesses and banks finds demand for loans slackening further in the third quarter, suggesting scant prospects of a reprieve from the credit slump seen in August and July.
Some 3,100 banks interviewed by the People’s Bank of China (PBoC), the central bank, reported a significant easing in loan demand among all three categories of firms – small, medium and large – for the third quarter, which ends at the end of September.
The loan demand index fell to 66.6 per cent, down from 71.5 per cent (see chart). The muted demand for loans is set to create headwinds for the PBoC’s initiative this week to boost economic growth by injecting Rmb500bn ($81bn) into the five largest state-owned banks, economists said. Read more
A huge bonfire of the brands awaits auto manufacturers in China as some 90m car owners prepare to disregard loyalty when they chose their next model.
A survey of some 2,400 car owners conducted by the Boston Consulting Group (BCG) found an itch to switch brands among 83 per cent of respondents who drove domestic Chinese brand cars. Of these, only 30 per cent said they would drive another domestic brand as their next car, while a full 40 per cent said they planned to plump for a Volkswagen.
The findings suggest that the next big trend for auto manufacturers in the Chinese market – which has expanded tenfold since 2000 to register annual sales of around 20m units – may not be so much concerned with chasing growth as with inculcating brand loyalty. Read more
By Qu Hongbin, Co-Head of Asian Economic Research, HSBC
For many, China’s growth model, which has delivered average annual GDP growth of 10 per cent over the past three decades, simply looks wrong: a national savings rate of around 50 per cent is unheard of in a large, modern economy.
A typical diagnosis states that China invests too much and consumes too little. The prescription is “rebalancing” – moving the economy away from investment towards consumption-led growth. However, a consumption-led growth model has little in theory or evidence to support it. Read more
Two out of the four BRIC economies of Brazil, Russia, India and China face severe labour shortages as soon as 2020.
“Many emerging markets are reaching the final phase of their demographic peak,” say the authors of a report by Boston Consulting Group which quantifies the extent of potential labour shortages and surpluses globally over the next 16 years.
The danger of a declining work force is well recognised in China, which is already suffering the impact of the one-child-per-family policy, in effect since 1979. BCG estimates that China’s surplus of about 65m workers in 2020 could turn into a shortage of up to 24.5m people by 2030. Recent proposals to ease the one-child policy, if implemented, would have only a limited impact, since children born now would not enter the workforce until after 2030. Read more
Stronger readings in China helped drive a marginal uptick in emerging market (EM) manufacturing activity in May, breaking a declining trend that has lasted for five consecutive months, according to purchasing manager index (PMI) data aggregated by Capital Economics.
The Capital Economics data, which showed an EM manufacturing PMI for May of 50.1 compared to 49.6 in April, coincided with a slight upswing in investment bank sentiment toward the Chinese economy. Nomura raised its China GDP forecast for the year, while Barclays saw a further easing in Beijing’s monetary policy. Read more
April was a pretty subdued month for emerging market manufacturers. But it seems to have been worse for the BRIC countries – especially China, Russia and Brazil (but not for India) – than for smaller EM economies in general. Some countries that thrive on Eurozone demand posted a fairly buoyant performance.
Overall, EM manufacturing’s PMI (purchasing managers index) fell to 49.6 in April, its lowest reading since June last year and the second straight month it has been below 50, which in theory separates contraction from expansion. Read more
Chinese steel mills were suffering a medley of woes in mid-March as sales slowed, production levels slumped and profits plunged, according to an investment bank survey published on Tuesday that foreshadows the rising risk of debt defaults in the world’s largest steel producer.
Macquarie Commodities Research, quoting a proprietary survey of Chinese steel mills and traders conducted in mid-March, found that large, medium and small steel mills were all enduring a contraction in orders compared to the same period in February, and profits had declined to historic lows. Read more
How are China’s manufacturers feeling? Ending the year on a bit of a downer it seems, if HSBC’s Flash PMI is anything to go by.
The reading came in at 50.4, just above the 50-mark that separates contraction and expansion, and pointing to a three-month low. Clear evidence of a cooling in the manufacturing sector? Certainly, if the early reading is a reliable gauge. However, the flash reading is proving to be quite a volatile guide to the final PMI figure. Read more
Last week’s “flash” estimate for China’s manufacturing sector turned out to be deeply wrong.
The HSBC/Markit survey of the sector came in well below forecasts this morning at 50.2, a full point below the estimate posted last week. Read more
By Sammy Suzuki of AllianceBernstein
China has been an incredible engine of manufactured exports over the past decade and the central player of the Brics era. But mounting competition from other countries is gradually pulling production away from China. How should investors proceed? Read more
When it comes to manufacturing indices, China is the big one. The question is which index to look at: the official state figures, or the widely-used HSBC/Markit index? They can often show different results.
For March, it’s relatively good news whichever index you pick. Official figures? Up, at 50.9. (50 is the mark that separates expansion from contraction), rising from 50.1 in February. HSBC/Markit? Up, at 51.6, higher than February’s 50.4. Read more
Repatriating manufacturing back from China isn’t only a phenomenon of developed western markets.
Taiwan is home to many of the companies that helped build the Chinese contract manufacturing model and which continue to pour billions into the mainland. Yet Taipei, too, has been rolling out ambitious plans to bring those manufacturers back home. Will it work? Maybe. But as one economist points out, an equally interesting area to track is how Taiwanese companies are changing the way they invest into China. Read more