China Manufacturing May Contract at Slower Pace, HSBC Index Says - Bloomberg

By Bloomberg News - 2012-07-24T03:01:14Z

China’s manufacturing may contract at a slower pace in July after two interest-rate cuts and a rebound in lending spurred demand in the world’s second-largest economy, a private survey indicated.

The preliminary reading was 49.5 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. If confirmed, that would be the highest since February. In June, the final number was 48.2.

Today’s report may offer investors some comfort that a slowdown has bottomed out after Premier Wen Jiabao stepped up stimulus to support growth. Standard Chartered Plc estimates expansion will rebound to above 8 percent this quarter after sliding to 7.6 percent in the April-June period.

“Earlier easing measures are starting to work,” Qu Hongbin, Hong Kong-based chief China economist for HSBC, said in a statement. “That said, the below-50 July reading implied demand still remaining weak and employment under increasing pressure. This calls for more easing efforts to support growth and jobs.”

A final reading below 50 would cap a nine-month run, the longest in the index’s eight-year history and surpassing the stretch from August 2008 to March 2009.

The preliminary reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of more than 420 companies, according to HSBC. The government’s own monthly index, due to be released on Aug. 1, had a June reading that was the lowest since November.

Yuan Weakens

The yuan weakened by less than 0.1 percent to 6.3895 per dollar at 10:42 a.m. in Shanghai. The MSCI Asia Pacific Index of stocks fell 0.3 percent.

Separately today, the Conference Board said its leading index for China’s economy rose 0.1 percent in June from May, citing a preliminary reading. That compares with a 1.1 percent gain in May, the New York-based research group said.

The People’s Bank of China has cut interest rates twice in the past two months and widened the discount on benchmark lending rates that banks can offer to clients.

Chinese banks may issue 1 trillion yuan ($157 billion) of new local-currency loans in July as “the government’s stimulus policies are transmitted to the real economy,” Zhang Zhiwei, a Hong Kong-based economist at Nomura Holdings Inc., said in a July 19 note to clients. China’s gross domestic product growth bottomed in the second quarter and will rebound in the second half, he said. Loans totaled 919.8 billion yuan in June.

Investment Pickup

Fixed-asset investment excluding rural households accelerated in June, with the government reporting 20.4 percent growth in the first half from a year earlier, up from 20.1 percent in the first five months of 2012. The government has boosted its planned railway investment this year by 9 percent to 448.3 billion yuan from 411.3 billion yuan, based on a statement dated July 6 on the website of the National Development and Reform Commission’s Anhui branch.

China’s property market may be starting to rebound after government restrictions pushed down prices. New home prices in June rose in the most number of cities tracked by the government in 11 months as buyer sentiment improved with lower interest rates.

Not all signs are pointing to an immediate acceleration in the nation’s economy.

More than 2,000 Hong Kong-owned factories in the Pearl River Delta may close this year as export orders fall and wages rise, Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, said last week. The organization’s members have garment, watch, toy and footwear factories in the export hub of Guangdong.

Labor Situation

Wen said last week that he sees a more “severe” Chinese employment situation ahead and that the world economy faces “more factors of instability and uncertainty” as well as “downward pressure.”

Song Guoqing, an academic member of the People’s Bank of China monetary policy committee, on July 21 predicted economic growth may cool to 7.4 percent this quarter. He said a drop in producer prices, combined with rising consumer prices, may hurt investment returns of industrial companies, damping their desire to expand.

China’s export growth in the first half cooled to 9.2 percent, down from 24 percent in the first six months of 2011, as Europe’s austerity measures and government debt burdens capped shipments. The nation is targeting 10 percent gains in exports and imports combined for the year.

Sany Heavy Industry Co., China’s biggest maker of excavators, lowered its annual unit-sales forecast, Vice Chairman Xiang Wenbo said in a July 11 interview. A “meaningful recovery” in demand for earth-moving equipment may not be visible until the first quarter of next year, Xiang said.

--Zhou Xin. With assistance from Zheng Lifei and Nerys Avery in Beijing. Editors: Scott Lanman, Paul Panckhurst

To contact the reporter on this story: Zhou Xin in Beijing at xzhou68@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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China Manufacturing May Contract at Slower Pace, HSBC Index Says

China’s central bank cut interest rates for the second time in a month on July 6 to spur growth ahead of a report that showed gross domestic product expanded last quarter at the slowest pace in three years.

China’s central bank cut interest rates for the second time in a month on July 6 to spur growth ahead of a report that showed gross domestic product expanded last quarter at the slowest pace in three years. Photographer: Nelson Ching/Bloomberg