China Manufacturing Contracts for First Time in Nine Months : Official Survey!

Well the official survey is now showing manufacturing in China is contracting. This following China's recent, though very moderate, policies to stimulate economic activity. They're stuck between a rock and hard place as inflationary pressures remain a concern and their housing market is picking up again where the risk over time is a property bubble. So wonder what they are going to do? Probably continue moderate stimulus until GDP slows to unacceptable levels, and then will probably launch some bigger stimulus firepower.


Bloomberg

China’s manufacturing shrank for the first time in nine months, an official survey showed, signaling the growth slowdown in the world’s second-biggest economy may be deepening.

The Purchasing Managers Index fell to 49.2 in August from 50.1 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compares with the median forecast in a Bloomberg News survey for a reading of 50, which marks the dividing line between expansion and contraction.

Today’s data increase pressure on Premier Wen Jiabao to step up stimulus to reverse a growth slowdown that may extend into a seventh quarter, after export gains stalled in July and new lending declined. Stabilizing expansion is the key task for the economy in the second half, Wen said last month.

“Downside risks to economic growth are increasing,” Chang Jian, a Hong Kong-based economist at Barclays Plc who formerly worked for the World Bank, said before the release. “Slowing external demand and policy inaction may cause growth to slide further.”

The government may further reduce interest rates and roll out more fiscal support including investment spending and tax cuts to stabilize growth at 7.5 percent to 8 percent this year, Chang said.

It seems their version of quantitative easing hasn't worked as planned; which I guess the thought was "if America can do it - we can do it too and even manipulate the value of their currency at the same time!" Unfortunately for the Peoples Bank of China they are having liquidity issues as well and most of their investments are in foreign (US) securities.

I haven't researched much in regards to China's stimulus but found a blog that offered a simplistic view of their current situation. Link below content.

The PBOC used to create money mainly as a result of foreign exchange intervention. During the time when there was huge pressure for the Chinese Yuan to appreciate (in part due to trade surplus and persist foreign investment, and in part due to hot money), the PBOC intervened to prevent the Yuan from appreciating too quickly. It “printed money” to purchase foreign currencies. This was how the foreign reserve accumulation worked for China, and the balance sheet expansion of PBOC was mainly driven by the increase of foreign assets. To illustrate the point, the chart below shows the balance sheet (asset side) of the PBOC and its major components. As you can see, the bulk of PBOC assets are foreign, which is vastly difference from the balance sheet of the Federal Reserve, with its assets mostly in US Treasury securities. The pace of expansion of the PBOC balance sheet was so fast that it increased by more than 450% from early 2003 when total assets amounted to a little more than RMB5 trillion to about RMB28.6 trillion at the end of June 2012:

Read more from the sourced article

Makes you wonder how is this going to affect us directly - not globally; which that is another "ball of wax!"

Back in July when China announced it's growth figures of 7.8% analysts were scratching their heads because when they made the calculations the growth wasn't anywhere near that, it was more like 3%.

From Marc Faber's blog:

the Chinese economy did not grow in the second quarter by 7.8% - in my view, maximum 3% - and we have very precise statistics. The two countries where the exports were predominantly China-geared – Taiwan and South Korea and where the statistics are more reliable than what the Chinese announced in GDP growth, these countries have negative export growth on a year-on-year bases in the last month in June. If these countries have declining exports, it tells you something about the Chinese economy. We have other reliable statistics like gaming revenues in Macau and so forth. The overall revenues are still up but the junkit turnover is down. These are middle men who bring the gamblers to Macau. Their growth rate has slowed down, luxury consumption has slowed down and electricity consumption is basically flat. Steel and cement production is up maximum 2-4% year-on year and so we have some reliable statistics. Macdonalds just reported that their sales in Asia year-on-year is down more than 1%. Believe me if in a growth region, where markets are not yet saturated and where shops like MacDonalds are like prestige things for families to go and where their sales are down believe me – something is not quite right. I can see it with my own eyes. I don’t think that in Asia at the present time there is any economic growth.

So it seems that China's official figures are manipulated to make them look much better than they actually are.
Which means if China are reporting a slow down, then it is much worse than that.

reply to post by surrealist


Well China will experience their own economic collapse soon

It's also representative of the debasement of their export market. Not something that China did on it's own, but was more than happy to help along. If I'm now working a minimum wage service job because my middle class manufacturing job got offshored to China, I'm no longer going to be able to afford that brand name product now being made in China.

Companies may cut out the labor cost, but they don't cut down the price and keep that overhead as profit. Looks good on quarterly reports, and looks good when playing the stock market, but it's really not sustainable long term. What did these MBAs and accountant types expect to happen?

Of course if this trend stays around long enough, don't be surprised if a lot of Chinese brands show up in the U.S. and Europe with the same quality of established brand names, but at much less expensive prices. In other words, that chicken will come home to roost.

Nope, I'm not even an economics major, just looking at the obvious.

If the chines apply too mutch stimulas, to lower interest rates or building
more ghost cities, they risk the collaps of the housing market, which is wildly
over priced. and also the collaps of domestic spending thus the export market
becomes even more important. the trouble their is that exports will be down as
retail sales are slowing around the world. china is in a bad spot, as is the rest of
the globe.