Tag Archives: China hard landing

China Services PMI Falls To Record Low On Weak New Order Inflows

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This report leaves open the hard landing possibility, as defined by GDP growth under 6%:

China Services PMI Falls To Record Low On Weak New Order Inflows

September 5 (RTTNews) — An indicator of the health of China’s service sector fell to a record low in August, on the back of weak intake of new orders, latest data from Markit Economics showed Monday.

The seasonally adjusted business activity index fell to 50.6 in August from 53.5 in July, pointing to near stagnation in service sector. An index reading above 50 indicates expansion of the sector, while a reading below 50 suggests contraction.

Slowing new business inflows drove the HSBC China Services PMI reading to the lowest level since the series began in November 2005, HSBC chief economist Hongbin Qu said. This reflects the effect of property and credit tightening measures, the economist added.

“That said, the property market is unlikely to collapse not least because of Chinese households’ low leverage ratio and the fact that credit tightening is likely approaching an end. This, plus resilient consumer spending, suggests China’s service sector is likely to see a moderation in growth, and not a meltdown,” Hongbin said.

The composite output index, that measures activity across both manufacturing and service sectors, recorded a score of 50.4, unchanged from July’s 28-month low. The reading pointed to another marginal expansion in Chinese private sector activity.

On the prices front, average cost burdens faced by service providers continued to rise markedly in August, primarily reflecting pressure from higher salary payments. Despite marked cost rises, service sector firms increased their output prices only marginally in August, as strong competitive pressures restricted their pricing power.

According to data from the China Federation of Logistics and Purchasing, or CFLP, Saturday, China’s non-manufacturing sector growth eased in August, largely driven by a slowdown in railway investment. The CFLP Purchasing Managers’ Index for the non-manufacturing sector fell to 57.6 from 59.6 in July. The PMI survey for the manufacturing sector indicated the activity improved slightly in August, signaling a gradual stabilization of the domestic economic situation.

Despite a slight improvement in overall factory sector performance, exports orders declined, reflecting lackluster growth among overseas economies.

China’s economic growth cooled to 9.5 percent year-on-year in the second quarter from 9.7 percent in the first quarter, according to government data.

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Ch News

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More slowing noises.

Jury still out on possible hard landing (GDP under 6%), and elements of the ongoing inflation fight sustains downside risks as well. The cuts in deficit spending and state lending hurt the economy, as the higher interest rates from the bank of china keep upward prices on inflation.

And lots of miguided comments below as well.

Public investment is entirely sustainable, for just one example, but because they believe it’s not, they seem to be trying to move away from it. For example, it’s perfectly ‘sustainable’ (moral hazard issues, efficiencies, etc. aside) to build housing and give it away for no charge.

Analysis: China unlikely to cool investment as its growth engine

Excerpt:

In spite of global clouds, most economists still expect China to grow well above 8 percent in 2012. That is in line with the market refrain that China won’t have a hard landing. A Reuters poll in mid-July showed economists think 2012 growth will be 8.8 percent, well above Beijing’s 7 percent growth target.

REBALANCING, SOME DAY
Some of the 4 trillion yuan ($626 billion) stimulus package announced in 2008 was squandered on ill-advised projects and economists now worry that a sizable fraction of loans to local governments won’t be repaid.

Banks may be wary of extending more large loans, making it difficult for local governments to invest their way to growth in the future.

Last week alone, China halted new railway projects and cut its building target for public housing by 20 percent to 8 million units for 2012, from 10 million.

Yet, economists say little has changed in reality.

China’s bullet trains may be a beguiling metaphor for its rapid urbanization, but rail investment accounted for just a paltry 1.9 percent of total fixed asset investment in the first six months of this year.

If anything, some economists argue Beijing is most likely to increase investment in housing if it decides to stimulate growth in coming months.

HOMES PRICED OUT OF REACH
Soaring property prices have put homes out of reach for many ordinary Chinese, and that has become a source of public ire. Keenly aware of that, Beijing wants to build more public homes to keep them affordable.

And with the real estate market accounting for a quarter of total investment in the first half of this year, China could get decent bang for its buck if it ramps up spending in the sector.

Judging by Beijing’s recent remarks on monetary policy, it appears that China is ready to pause its 10-month policy tightening campaign as rain clouds gather over the world economy.

Alongside wide expectations that China’s inflation is near its peak after hitting a three-year high of 6.5 percent in July, many analysts think Beijing is ready to support economic growth if needed.

To be sure, Beijing says it wants to cure China of its penchant for investment-driven growth. Under its broad five-year economic plan starting from 2011, it envisions a fairer Chinese economy where consumption climbs on rising incomes.

But the grand plan drew skepticism when it was unveiled as it was short on details on how changes would come about.

FEW BIG SPENDERS
Many analysts have said that Chinese consumers cannot pull their weight as big spenders because the bulk of national income goes to the state instead of workers. A flimsy social safety net encourages high saving rates.

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China’s second half now in progress

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With govt lending and spending ‘front loaded’ into the first quarter the second half slows down relative to the first, and the first half was just ok this year.

Headlines:

China’s June Home Prices Slow in Major Cities, SouFun Says
China June PMI hits 28-mth low as global slowdown bites
China’s GDP to grow 9.5% in H1
China Eliminates Income Tax for 60 Million Workers Amid Tension Over Inflation, Wealth Gap

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China- Growth of FDI slowing

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With its capital constraints FDI has been channel for speculative inflows to facilitate bets on yuan appreciation.

While month to month numbers are volatile, they’re worth keeping an eye on.

In the long run inflation weakens a currency.

Also, JPM yesterday suggested increased risk of what they called a hard landing

Growth of foreign direct investment in China slowing

May 18 (Global Times) – Foreign direct investment (FDI) in China rose to $8.46 billion in April, driven largely by investment in the property sector. The figure is 15.21 percent higher than the previous year but represents a slower rate of growth than seen in March, according to official data released Tuesday.

The slowdown of FDI growth as well as other economic indices this month showed that the economy is cooling down, economists warned Tuesday.
April’s figure was lower than the $12.52 billion invested in March and represented less than half of March’s year on year growth rate of 32.9 percent. The ministry did not elaborate on the reasons for the fall.

The property sector attracted about 24 percent of April’s investment flows, Ministry of Commerce spokesman Yao Jian said at a press briefing.
During the first four months of the year, FDI rose 26.03 percent over levels of the previous year to $38.80 billion, the data showed.

During this period, 10 Asian economies including Japan, Singapore and Hong Kong set up 6,487 new businesses, up 9.87 percent from the previous year, and invested $32.9 billion, up 31.23 percent from the previous year.

EU countries set up 562 new businesses in China, up 16.36 percent from the previous year, while investment from the EU rose 23.42 percent to reach $2.6 billion.
“Despite the financial crisis, European companies are still expanding and investing abroad, including in China. We encourage further market access in China to attract even more EU companies to invest there and indeed we also encourage Chinese companies to invest in Europe,” William Fingleton, a spokesman for the Delegation of the EU to China, told the Global Times in an email.

However, investment from the US dropped 28 percent during the first four months of this year to $1.03 billion in April.

FDI in China plunged after the financial crisis in 2008 but rebounded strongly last year to reach $105.7 billion.

“If the figures released in the first three months are regarded as volatile, April’s FDI figure as well as the month’s imports, manufacturing and other economic indices reported earlier showed a cooldown has firmly set into the economy,” Tian Yun, director of the research center of China Society of Macroeconomics, told the Global Times.

“The economy risks a further slowdown if the government’s monetary tightening policy continues and the country’s employment situation, which should always come before inflation issues, will remain worrisome,” Tian warned.

Inflation Outlook

Governor Zhou Xiaochuan said China’s central bank was focused on controlling prices, without mentioning threats to growth, an indication that he has been more concerned about inflation than any risk of a growth slowdown.

The central bank will “control the monetary conditions behind excessively rapid gains in prices,” Zhou said in comments dated April 18 and released yesterday in the central bank’s annual report. The comments tally with a monetary policy report released May 3 and were before data showing industrial output growth weakened last month.

Home prices rose in China’s 67 of 70 cities monitored by the government in April from last year, led by smaller cities that are defying efforts to control property prices nationwide. Housing prices increased at a faster pace in smaller cities and slowed in major ones, data posted on the statistics bureau’s website today showed.

Rising Coal Demand

Shenhua, the nation’s largest coal producer, rose 0.9 percent to 28.53 yuan. Yanzhou Coal Mining Co., the fourth biggest, advanced 0.9 percent to 32.99 yuan.

Demand for thermal and coking coal may increase between 8 percent and 10 percent this year as less rainfall curbs supplies of hydropower and boosts demand for coal-fired electricity, Luo Zeting, an analyst at Citic Securities, wrote in a report today.

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CH Daily | New yuan lending falls to 2.24 trillion

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More evidence of restricted state lending as the fight against inflation continues.

To their credit, no signs of an actual hard landing yet, but the battle is still on.

China’ new loans stand at 2.24t yuan in Q1

(Xinhua) The People’s Bank of China (PBOC), the country’s central bank, said that new yuan-denominated loans stood at 2.24 trillion yuan ($342.83 billion) in the first quarter of 2011. The figure was 352.4 billion yuan less than that in the same period of last year, said the PBOC in a statement on its website.

Banks suspend mortgage loans

(China Daily) Some bank outlets in Shanghai have suspended mortgage loans to home buyers, the China Securities Journal reported. An anonymous developer said, the Shanghai outlets of the China Industrial and Commercial Bank, the Agricultural Bank of China, the China Minsheng Banking Corp Ltd and the Industrial Bank Co Ltd all suspended issuing loans. “Banks do want to lend, but they may have no money for lending” the developer said. China has raised the reserve ratios for banks nine times since last year, and 3 trillion yuan of banks’ capital has been frozen as a result. Sources with the above mentioned banks said they have not stopped mortgage loans, but have more strict requirements for granting these loans.

Beijing March New House Prices Plunge 26.7% M/M: Press

BEIJING (MNI) – Prices of new homes in China’s capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city’s Housing and Urban-Rural Development Commission.

Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.

Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government’s crackdown on speculation in the real estate market.

Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December, according to National Bureau of Statistics data.

The central government has launched several rounds of measures since last year designed to cool the housing market, though local government reliance on land sales to plug fiscal holes mean enforcement hasn’t been uniform.

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