China’s Manufacturing Index Signals a Surprising Contraction

Published on Author taylor

China’s manufacturing index in January was 49.6, while in December it was 50.5, portraying that there was no expansion in the past month. Additionally, Asian stocks experienced a loss because the statistical data pointed to a weakening demand for manufacturing. Qu Hongbin, a chief economist in Hong Kong stated that today’s report “implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth.” Another economist, Hu Yifan, thinks that the rising funding costs are adding difficulties to the industry and that the PMI will report a continued declining trend.

Car manufacturers are expected to see a drop between 4-6% in sales according to the China Association of Automobile Manufacturers. Geely Automobile Holdings, Ltd., who is the parent owner of Volvo Cars, is expected to see their sales growth drop from 14% last year to 6% this year. This report gives one of the first indications of how the economy is doing thus far in 2014, and forecasts for year-end.

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6 Responses to China’s Manufacturing Index Signals a Surprising Contraction

  1. See a post by Menzie Chinn on Chinese GDP statistics – are they reliable? He concludes that for comparing recent points in time – that is, calculating growth rates – yes.

    Ah, sales will drop at Geely/Volvo – wait, grow by only 6%. The hearts of us in the US bleed for the executives in China as they adapt to the challenge of only 6% growth.

  2. I believe the HSBC reading came in below 50. Unless I’m mistaken this is the source that is generally trusted, and often gives readings lower than the official party data.

  3. If I recall correctly, this is one of the concerns in China. The economy that has been growing so fast is now suffering from slower growth rate. What is their problem? Is it the decline on foreign investment or increase in debt?

    • According to a recent report from Bloomberg, the decline in manufacturing can be attributed to surging money-market rates that has dampened industry confidence. Economist Liu Li-Gang believes that in order to revamp confidence, the central bank will “have to strike a delicate balance” between cracking down on shadow-banking and maintaining financial stability.