BackChina manufacturing expands at slower pace amid cash squeeze
The official PMI stands at 50.1 in June, the weakest in four months
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Beijing: China’s manufacturing expanded at the slowest pace in four months as a cash squeeze in the banking system reduced the flow of credit to companies.
The Purchasing Managers’ Index (PMI) was at 50.1 in June, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on Monday in Beijing. That matched the median forecast of 33 analysts in a Bloomberg News survey and was down from May’s 50.8. Readings above 50 signal expansion.
Weaker gains in manufacturing add to odds that Li Keqiang will become the first premier to miss an annual growth target since the Asian financial crisis in 1998. Expansion probably slowed for a second straight quarter, based on the median estimate in a Bloomberg News analyst survey, after export growth collapsed and Li reined in record credit expansion to contain shadow-banking risks.
“The damage has already been done on real economic activity," Xu Gao, Beijing-based chief economist at Everbright Securities Co., said before the report.
Domestic debt sales dropped 48% in June from the previous month to 190.6 billion yuan ($31 billion), according to data compiled by Bloomberg.
The Shanghai Composite Index fell 14% last month, the most since August 2009, on the cash squeeze. It rose 1.5% on 28 June, the first gain since 18 June.
HSBC Index
The preliminary reading of a separate manufacturing PMI released by HSBC Holdings Plc and Markit Economics on 20 June was 48.3, lower than the 49.1 median estimate. The figure, if confirmed in the final report due at 9:45am local time, would be the lowest since September.
CSSC Jiangnan Heavy Industry Co., a Shanghai-listed maker of steel structures for buildings and ships, said on 24 June that it may report a first-half loss on falling orders and prices.
The logistics federation increased the number of companies in its manufacturing survey to 3,000 from 820 starting with January’s reading. The HSBC report is based on responses from purchasing managers at more than 420 businesses, and is weighted more toward smaller private companies.
The biggest squeeze on interbank credit in at least a decade came at a time when China’s economic slowdown has been deepening, as industrial production and exports trailed estimates in May.
Projections cut
Goldman Sachs Group Inc., China International Capital Corp., Barclays Plc and HSBC Holdings Plc last month pared their growth projections this year to 7.4%, below the government’s 7.5% goal set at a March conference where Li became premier.
Chinese president Xi Jinping said officials shouldn’t be judged solely on their record in boosting gross domestic product, the Xinhua News Agency reported on 29 June, adding to signals that policymakers are prepared to tolerate slower economic expansion. The Communist Party should instead place more importance on achievements in improving people’s livelihood, social development and environmental quality, Xinhua said.
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