To add to John Taylor’s prior post, output and export orders are shrinking in China according to numerous manufacturing gauges. The Purchasing Managers’ Index (SHCOMP), was at 50.5 as of February 1st 2014, down 0.5 percentage points from December 2013. In general, numbers above 50 signal expansion, so China’s manufacturing is declining relatively quickly. A separate manufacturing gauge released by HSBC Holdings Plc and Markit Economics on January 30th pointed to the first contraction in over six months.
The implications of these findings, according to Bloomberg, “amplify the risks of a deeper cooldown as Communist Party leaders clamp down on the $6 trillion shadow-banking industry and interbank borrowing costs rise.” What’s more, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong Liu Li-Gang said “There is no doubt that the surging money-market rates have added uncertainty and dampened industry confidence”, leaving speculators with heightened doubt about long-term sustainable growth.
Why should exports be falling? – does the problem lie inside China or in anemic growth in the EU, the US and now South America & South Asia? As to domestic demand, the PBOC has tried to tighten money / raise interest rates and slow the economy. Maybe that policy is working.