February 21, 2020

Manufacturing in China Cools Further in June

HONG KONG — Activity in China’s manufacturing sector continued to slow in June, two surveys showed Monday, underscoring concerns that the Chinese economy is likely to lose steam in the coming months.

The Chinese statistics bureau released an index that showed factory activity had barely expanded in June, a month that was overshadowed by a credit crunch in the banking system.

The official purchasing managers’ index came in at 50.1 points — just above the 50-point mark that separates expansion from contraction, and markedly below the May reading of 50.8.

A separate P.M.I. survey published by the British bank HSBC produced a reading of 48.3, likewise showing a marked decline from May, when it was 49.2. The June figure was the lowest in nine months, and represented a slight downward revision from a preliminary reading released on June 20.

Together, the surveys showed that a gradual slowdown that began to materialize earlier this year is continuing as the Chinese authorities — eager to wean the economy off excessive credit growth — refrain from adding stimulus.

Policy makers have made it clear in recent months that they are prepared to tolerate slower growth as they seek to shift the economy away from the headlong expansion of the past few decades and toward higher-quality and more sustainable growth.

A cash crunch in the commercial banking sector last month further underscored this, as Beijing took a tough stance on lending in a bid to foster more prudent banking activity.

The central bank last month allowed bank-to-bank lending rates to spike to record highs, sending a stern message to the banking industry that it needs to step up risk controls and improve cash management.

Although analysts said the move could be positive in the long term if it helps to instill more lending discipline, the crunch led to a big sell-off in the stock market as investors fretted about the impact that more restrictive lending could have on the already cooling economy.

Lending rates have retreated again over the past week, and continued to do so on Monday. The stock market, likewise, has calmed over the past few days, and the Shanghai composite index had edged up 0.1 percent by late morning on Monday.

Still, the manufacturing surveys reinforced concerns that activity remains fragile.

The recent cash crunch in the interbank market is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for small and medium-size enterprises, Qu Hongbin, the chief China economist at HSBC, wrote in a commentary accompanying the release of the purchasing managers’ index.

“As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months,” he added.

Article source: http://www.nytimes.com/2013/07/02/business/global/manufacturing-in-china-cools-further-in-june.html?partner=rss&emc=rss

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