The results of a private survey indicate that after a rebound in lending and two interest-rate cuts, China’s manufacturing contraction may slow. A PMI reading of 49.5 was released today by Markit Economics and HSBC Holdings Plc, just 0.5 off the elusive growth level. This Flash PMI gives an unofficial reading and is based on the majority response of a survey issued to more than 400 companies. Although this number is preliminary, if confirmed it would be a 1.3 rise on June and the highest reading since February. On August 1st the governments own monthly index will be released and the 49.5 figure will either be proven false or confirmed.
Qu Hongbin, chief economist for HSBC, stated that ‘Earlier easing measures are starting to work.’ However, Qu went on to assert that the Chinese economy still had a long way to go: ‘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 further below 50 reading would take the run to nine consecutive months, the longest in nearly a decade.
The China Flash Manufacturing PMI Summary listed New Orders, Stocks of Purchases and New Export orders as contracting at a slower rate.
Employment, however, was shown to be contracting at a faster rate, which means China’s unemployment issues could be set to worsen. This confirms a statement attributed to the nation’s premier last week. Wen Jiabao was quoted by the official China Securities Journal as saying: ‘Currently and in the future, China’s employment situation will become more complex and more severe. The task of promoting full employment will be very heavy and we must make greater efforts to achieve it […] we need to maintain steady and relatively fast economic growth to help create jobs.’
Although the job market in China has managed to remain comparatively tight for the first half of this year, thousands of college/university graduates have entered the arena in recent weeks and are battling to find work. Furthermore, with rising raw materials costs, significant wage increases and a reduction in orders, job cuts could climb in companies dealing with small and medium sized exports. To this end, it is expected that at least 2,000 factories owned by Hong-Kong in the Pearl River Delta may close.
Three days ago it was also predicted that China’s economic growth could cool this quarter to 7.4 per cent. The prediction was made by Song Guoqing, a member of the People’s Bank of China Monetary Policy Committee. He felt that the investment returns of industrial companies might be damaged by rising consumer prices warring with a drop in producer prices.
This follows the significant cooling of export growth reported in the first half of the year, as 2011’s 24 per cent dropped to 9.2 per cent in the same period of 2012.
Clearly, as current European news demonstrates, Wen Jiabao was right in declaring that the world economy will continue to face ‘factors of instability and uncertainty’. China, for one, is not about to speed down the path of economic recovery.
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