Econintersect: The Hong Kong Shanghai Bank (HSBC) flash PMI (Purchasing Managers’ Index) rebounded to 49.5 for July, just below the 50 mark which is the dividing line between 
expansion and contraction. The index improved from 48.2 in June but remained below the 50 mark for the ninth consecutive month.
The employment sub-index declined in the latest report. This could put serious pressure on the government to step up activities to improve growth. The nation’s GDP growth fell to 7.6% in the first half of the year, down from growth which was running at 9.5% just one year ago.
Even with the declining GDP growth, there is concern about wasteful activity in manufacturing, infrastructure and real estate. From GEI News on 13 July 2012:
… some China observers are pointing to industrial activity that appears to be egregiously wasteful, so increased bank lending in June may not necessarily be a good thing. See articles by Craig Tindale and John Hempton. And China economic expert Michael Pettis thinks that the country will need to get its GDP growth down to 3% soon to effect a necessary rebalancing without major economic turmoil. (GEI Analysis)
Pettis’ opinion is particularly troubling because many have the opinion than GDP growth below 5% would constitute a hard landing for the economy.
Others have expressed the opinion that the Chinese economy has already bottomed in the first half of this year.
Finally, CPI and PPI have been collapsing over the past several months, to such an extent that some are asking whether China could actually see a period of deflation. If that occurred it would provide a brake on growth.
Sources:
- China manufacturing edges toward growth (Simon Rabinovitch, Financial Times, 24 July 2012)
- HSBC China Flash PMI at 5-Month High on Output Bounce (Reuters, CNBC, 24 July 2012)
- China: GDP Growth Slips to 7.6% (GEI News, 13 July 2012)
- China: Prices Falling Off a Cliff, Trade Balance Unexpectedly Positive (GEI News, 10 July 2012)
