China fears rise as Asian growth slows
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Nervous investors in China were given a fresh reason to worry on Thursday as a slew of reports on manufacturing suggested that the pace of growth in factory activity was slowing across much of Asia and might even have turned negative in China.
China’s manufacturing output contracted slightly on one unofficial but closely watched measure while the country’s National Bureau of Statistics described the official numbers as grim.
Purchasing managers’ index reports for South Korea, Taiwan, India, Australia and China all showed weaker activity for June, confirming indications that the region is seeing an easing of the growth surge that followed the global financial crisis. The monthly PMI report for Japan, published on Wednesday, told a similar story.
However, the overall level of factory activity – which includes a range of measures in addition to output – continued to expand in all six countries, suggesting that manufacturers may be experiencing a return to more normal rates of growth rather than heading for contraction.
The possible exception was China. The unofficial HSBC purchasing managers’ index remained positive, falling to 50.4 from 52.7 in May, and the official PMI index from the Federation of Logistics and Purchasing fell to 52.1 in June from 53.9.
An index figure above 50 indicates an expansion of activity, while a figure below 50 indicates a contraction.
However, HSBC also said its sub-index for Chinese factory output fell to 49.6, which would be consistent with a slight fall in production. The index stood at 60.6 at the start of the year and has been slowing steadily.
The general picture of growing weakness was broadly supported by the official index, which reported falls in the sub-indices for new export orders, backlogs of work, imports and employment, though not all turned negative. However, the output sub-index in the official report remained positive, falling to 55.8 from 58.2 in May, but remaining well above the level that indicates a contraction.
China’s National Bureau of Statistics said the official numbers reflected the impact of tighter government policies and a weakening of the global recovery.
As well as slowing the approval of new investment projects and growth in bank credit, the government in April unveiled a package of policies aimed at reducing speculation in the country’s property market. Beijing has also modestly appreciated the currency against the US dollar in recent days.
However, although international investors have been reacting nervously to reports of slowing growth in China, most economists analysing the country believe the economy is headed for a much-needed slowdown from the heady growth of the first quarter, when gross domestic product rose 11.9 per cent, rather than a slump.
“China’s recovery remains solid but is clearly moderating from the very fast pace set at the start of the year,” said Brian Jackson, strategist at RBC Capital Markets in Hong Kong. However, he added that “a slowdown in activity in the months ahead might prompt some in Beijing to argue for a halt” in currency appreciation.
Economists said the gradual slowing in the Chinese economy would only turn into a hard landing if construction activity collapsed as a result of the clampdown on property speculation or if exports weakened sharply again as a result of subdued growth in Europe and the US.
Hongbin Qu, HSBC’s China chief economist, said the PMI numbers implied slower growth in the country’s manufacturing sector, partly due to the tightening measures taking effect. But he said fears of a hard landing were “overplayed”.
Mr Qu said HSBC expected China’s economy to continue growing strongly in the second half of the year, underpinned by massive investment spending and robust private consumption.
The HSBC South Korea PMI fell to 53.3 for June from 54.6 in May, indicating the weakest pace of expansion since December 2009, but extending a series of positive monthly reports to 16 successive months.
Economists said the figures for Asia’s fourth-largest economy suggested that more normal growth was returning to South Korea’s manufacturing sector, with the volume of new export orders still expanding, although coming in at a slower pace.
Waiho Leong, economist at Barclays Capital in Singapore, pointed to a 32.4 per cent increase in South Korean exports in June from a year earlier as evidence that growth in Asia “may not be about to keel over just yet”.
HSBC’s Taiwan Manufacturing PMI fell for the third successive month to 53.8 in June, from 57.4 a month earlier. But it remained positive for a 15th successive month.
Frederic Neumann, co-head of Asia economic research at HSBC in Hong Kong, said new export orders were still growing at a “decent” pace.
“After surging over the first five months of the year, the growth of Taiwan’s economy is starting to cool. This, however, does not signal a hard landing,” said Mr Neumann.
In Japan, the Nomura/Japan Materials Management Association PMI fell to 53.9 from a four-year peak of 54.7 in June. The numbers, published on Wednesday, suggested that firm growth was continuing, and marked the 12th successive month of expansion.
Minoru Nogimori, an economist at Nomura, said the continued high level of new export orders indicated that shipments would remain solid.
“While some have been concerned about the impact on the Japanese economy of financial market disruption triggered by the European fiscal troubles, so far that impact appears to have been small, and we expect the Japanese manufacturing sector to continue to improve for a while,” he said.
The HSBC India manufacturing PMI retreated from a 27-month high of 59.0 in May to 57.3 in June, but recorded its 15th successive month of expansion. Economists said factory activity and prices were retreating from very elevated levels, noting that there were no real signs of a slowdown in growth.
The Australian Industry Group/PwC performance of manufacturing index fell by 3.4 points to 52.9, remaining positive, but registering slower growth in production, orders, employment and supplier deliveries.
Separately, Vietnam’s government statistics office said the communist country’s economy had grown by an estimated 6.4 per cent in the second quarter from a year earlier, accelerating from growth of 5.8 per cent in the first three months.
The office said the economy had grown by 6.2 per cent in the first half of 2010 from the same period last year. “The higher growth rate of the second quarter suggests the economy is recovering swiftly and achieving a high growth rate,” it said.
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