+44 (0) 203 137 7261
Recent China research
|China Weekly: Car sales improve, but luxury brands face potholes, 21 May 2013|
|Xi fights graft to strengthen the regime, Jonathan Fenby, 21 May 2013|
|China Weekly: A China case study: Bottled water adds to food safety problems, 14 May 2013|
|China Weekly: China’s White Goods: Survival of the biggest, 9 May 2013|
See all our China research >>
Recent blog posts
Watch the clouds,
20 May 2013
China’s food safety – and the trust deficit,
7 May 2013
Rising confrontations and the China Dream,
2 May 2013
China’s regional policy dilemma deepens,
10 Apr 2013
See all China Blog posts >>
Who cares about the real economy?
On Wednesday, we got the latest official purchasing managers’ index (PMI), and what did it report? A rise above the 50 mark which is the watershed between a positive and a negative outlook, with orders at a three-month high. The parallel HSBC PMI survey showed the least contraction in expectations for a quarter.
And how did markets react? Shares dropped in Shanghai and Hong Kong.
Another data set, another illustration of the divergence between China’s real economy and the way the market reacts. Expectations are all – in this case, that the improved PMI figures will reduce pressure on the Chinese government to expand the easing that began towards the end of last year.
These were, of course, only one month’s figures, and the official index is only just above 50, but it still flies in the face of the ‘hard landing’ prophets, who have been so sure of a coming crash. (I speak as a believer in a ‘soft landing’, for reasons set out in the Outlook for 2012 report.) Imagine if the PMI had dropped to, say, 45. The bears would have been triumphant and the oft-forecast massacre of Wenzhou SMEs would have moved from over-blown headlines to reality, but the markets would have soared on expectations that the authorities would be forced to open the credit tap.
Even so, the next couple of months are likely to bring some nasty figures. As a result, the loan quota, for which no figure has been given, will rise significantly. Recession in Europe is a real and present threat. As Foxconn has found with the strike at its plant in Wuhan, moving manufacturing inland may tap into cheaper labour markets but migrant workers will object to pay cuts. Inflation will fall but will still be in the 2.5-3 per cent range before the next cycle starts, as against zero last time round. Consumption will continue to increase, but the Lunar New Year holiday showed a small slowdown on 2011. There are plenty of reasons for caution, just not the ones the market knee-jerks to.
Bloomberg interview on 2012-02-01