A preliminary survey suggests that China’s manufacturing sectors have contracted for the quarter. Although there have been numerous signs the Chinese economy is losing momentum the decrease in production will probably force a government stimulus to keep growth high. The report, which was weaker than expected, hurt Asian markets and the Australian dollar by a quarter of a cent. The HSBC Purchasing Manager’s Index which has been low all years disappointed with 48.1 an eight month low. The silver lining of the report was an uptick in new export orders which suggests that the slowdown is being driven by weaker domestic demand and an increase in employment which has been a government focus.
“We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower,” – Hongbin Qu, chief China economist at HSBC
While some have been quick to point out that falling manufacturing production is a sign of a slowing economy we have to remember that China is in the process of restructuring its economy in major ways. One of China’s goals has been higher wages and producing more valuable goods. Finally as China’s economy is now twice as large as it was in 2007 the effects of 7% growth now is as large an addition to the economy as 14% was in 2007. Overall while there are many signs both positive and negative for China’s economy part of what must be done to get a clear sense of how things are going is to silence the noise and view the context of each indicator.
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