 "China June flash HSBC PMI hits 9-month low on weak demand")
China’s manufacturing is shrinking at a faster pace this month, adding to stresses in the economy and financial system as a cash crunch drives benchmark money-market rates to records.
The preliminary reading of 48.3 for a Purchasing Managers’ Index released on Thursday by HSBC Holdings Plc and Markit Economics compares with the 49.1 median estimate in a Bloomberg News survey of 15 economists. May’s final reading of 49.2 was the first below 50 since October, indicating contraction.
Manufacturing weakness, along with the money-market cash crunch, will further test how far Premier Li Keqiang is willing to go in sacrificing short-term expansion for more-sustainable long-term growth. After record credit in the first four months of the year failed to stoke growth, China’s State Council, led by Li, said last night that the financial system needs to do a better job of supporting the economy.
“That possibility is growing now — it seems the leadership is deliberately taking a wait-and-see stance to see how low China growth can be.”
The seven-day repurchase rate, which measures interbank funding availability, rose 270 basis points, or 2.70 percentage points, to 10.77 per cent in Shanghai, according to a daily fixing announced by the National Interbank Funding Centre.
That was the highest in data going back to March 2003. The one-day rate rose by an unprecedented 527 basis points to an all-time high of 12.85 percent, a separate fixing showed. An intra-day gauge of the one-day rate touched a record 30 per cent.
Financial risks
Authorities will boost credit support for industries the government has defined as strategic and those that are labour-intensive, the State Council said yesterday after a meeting led by Li, without identifying specific sectors.
The nation must also more firmly guard against financial risks, and bank lending for projects in industries with overcapacity must be banned, the State Council said.
The benchmark Shanghai Composite Index fell 2.8 per cent.
If confirmed July 1 in the final PMI reading, Thursday’s level would be the lowest since September. The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own PMI survey, with a bigger sample size, the same day. The official PMI in May was 50.8, up from 50.6 in April.
The preliminary, or flash PMI, from HSBC is based on about 85 per cent to 90 per cent of responses from more than 420 manufacturers.
Factory production
Industrial production rose a less-than-forecast 9.2 per cent from a year earlier and factory-gate prices fell for a 15th month in May, while export gains were at a 10-month low and imports dropped.
At the same time, new-home prices rose at the fastest pace in more than two years in major cities last month, constraining the ability of policy makers to ease credit in response to weakening economic growth.
“Beijing prefers to use reforms rather than stimulus to sustain growth,” Qu Hongbin, HSBC’s Hong Kong-based chief China economist, said in a statement. “While reforms can boost long-term growth prospects, they will have a limited impact in the short term. As such we expect slightly weaker growth” this quarter, he said.
Yingli Energy (China) Co, a unit of the world’s largest solar-panel maker, said June 13 that it will slow investments to clear debt after facing anti-dumping duties in Europe.
Growth estimates
Investment banks from Morgan Stanley to UBS AG this month cut their estimates for China’s growth in 2013, and Barclays Plc is estimating that expansion will slow to 7.4 per cent, below the government’s full-year target of 7.5 per cent.
Economists forecast China’s gross domestic product will expand 7.6 per cent in the April-June period from a year earlier, the median estimate of 35 respondents to a Bloomberg News survey conducted from June 14 to 19. That compares with a 7.8 per cent median projection in last month’s survey and first-quarter growth of 7.7 per cent.
Analysts also trimmed growth forecasts to a median estimate of 7.7 per cent this year, down from 7.8 per cent projected in May, and 7.6 per cent in 2014, also down from last month’s 7.8 per cent. The economy expanded 7.8 per cent in 2012, a 13-year low, and the government set a target for 7.5 per cent growth in 2013.
Three out of 31 analysts expect a cut in the benchmark lending rate this year, compared with two out of 27 in May’s survey. Four out of 20 foresee a reduction in banks’ reserve requirements in 2013, up from two out of 17 last month.
Global indicators
Around the world on Thursday, Markit releases manufacturing and services indexes for Germany, France and the euro region, while the UK gives retail-sales numbers and the US reports initial jobless claims. Germany’s services industry expanded at the fastest pace in four months in June, while the nation’s manufacturing industry continued to contract.
Measures of consumer confidence are also released on Thursday in the US and the Euro region.
New Zealand reported slower economic growth in the first quarter after a drought curbed farm output. Gross domestic product rose 0.3 per cent from the previous quarter, when it expanded 1.5 per cent, government data showed.
The preliminary reading of 48.3 for a Purchasing Managers’ Index released on Thursday by HSBC Holdings Plc and Markit Economics compares with the 49.1 median estimate in a Bloomberg News survey of 15 economists. May’s final reading of 49.2 was the first below 50 since October, indicating contraction.
Manufacturing weakness, along with the money-market cash crunch, will further test how far Premier Li Keqiang is willing to go in sacrificing short-term expansion for more-sustainable long-term growth. After record credit in the first four months of the year failed to stoke growth, China’s State Council, led by Li, said last night that the financial system needs to do a better job of supporting the economy.
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“If market rates remain at such high levels, the only scenario for the Chinese economy is a hard landing,” said Xu Gao, chief economist with Everbright Securities Co in Beijing.
“That possibility is growing now — it seems the leadership is deliberately taking a wait-and-see stance to see how low China growth can be.”
The seven-day repurchase rate, which measures interbank funding availability, rose 270 basis points, or 2.70 percentage points, to 10.77 per cent in Shanghai, according to a daily fixing announced by the National Interbank Funding Centre.
That was the highest in data going back to March 2003. The one-day rate rose by an unprecedented 527 basis points to an all-time high of 12.85 percent, a separate fixing showed. An intra-day gauge of the one-day rate touched a record 30 per cent.
Financial risks
Authorities will boost credit support for industries the government has defined as strategic and those that are labour-intensive, the State Council said yesterday after a meeting led by Li, without identifying specific sectors.
The nation must also more firmly guard against financial risks, and bank lending for projects in industries with overcapacity must be banned, the State Council said.
The benchmark Shanghai Composite Index fell 2.8 per cent.
If confirmed July 1 in the final PMI reading, Thursday’s level would be the lowest since September. The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own PMI survey, with a bigger sample size, the same day. The official PMI in May was 50.8, up from 50.6 in April.
The preliminary, or flash PMI, from HSBC is based on about 85 per cent to 90 per cent of responses from more than 420 manufacturers.
Factory production
Industrial production rose a less-than-forecast 9.2 per cent from a year earlier and factory-gate prices fell for a 15th month in May, while export gains were at a 10-month low and imports dropped.
At the same time, new-home prices rose at the fastest pace in more than two years in major cities last month, constraining the ability of policy makers to ease credit in response to weakening economic growth.
“Beijing prefers to use reforms rather than stimulus to sustain growth,” Qu Hongbin, HSBC’s Hong Kong-based chief China economist, said in a statement. “While reforms can boost long-term growth prospects, they will have a limited impact in the short term. As such we expect slightly weaker growth” this quarter, he said.
Yingli Energy (China) Co, a unit of the world’s largest solar-panel maker, said June 13 that it will slow investments to clear debt after facing anti-dumping duties in Europe.
Growth estimates
Investment banks from Morgan Stanley to UBS AG this month cut their estimates for China’s growth in 2013, and Barclays Plc is estimating that expansion will slow to 7.4 per cent, below the government’s full-year target of 7.5 per cent.
Economists forecast China’s gross domestic product will expand 7.6 per cent in the April-June period from a year earlier, the median estimate of 35 respondents to a Bloomberg News survey conducted from June 14 to 19. That compares with a 7.8 per cent median projection in last month’s survey and first-quarter growth of 7.7 per cent.
Analysts also trimmed growth forecasts to a median estimate of 7.7 per cent this year, down from 7.8 per cent projected in May, and 7.6 per cent in 2014, also down from last month’s 7.8 per cent. The economy expanded 7.8 per cent in 2012, a 13-year low, and the government set a target for 7.5 per cent growth in 2013.
Three out of 31 analysts expect a cut in the benchmark lending rate this year, compared with two out of 27 in May’s survey. Four out of 20 foresee a reduction in banks’ reserve requirements in 2013, up from two out of 17 last month.
Global indicators
Around the world on Thursday, Markit releases manufacturing and services indexes for Germany, France and the euro region, while the UK gives retail-sales numbers and the US reports initial jobless claims. Germany’s services industry expanded at the fastest pace in four months in June, while the nation’s manufacturing industry continued to contract.
Measures of consumer confidence are also released on Thursday in the US and the Euro region.
New Zealand reported slower economic growth in the first quarter after a drought curbed farm output. Gross domestic product rose 0.3 per cent from the previous quarter, when it expanded 1.5 per cent, government data showed.