January 26, 2020

News Analysis: Asian Economies Encounter Stiff Winds

For the last few years, Asia’s developing economies — like China, Indonesia, the Philippines and Thailand — have been powering ahead of much of the rest of the world, buoyed by a heady cocktail of stimulus from policy makers at home and investment flows from abroad. In 2011, the region grew more than four times as fast as the American economy, and last year’s 6.5 percent growth was nearly three times that of the United States. Stock markets in the Philippines and Thailand were among the world’s best performers in 2012.

Over the past couple of months, however, some of the shine has come off the Asia story.

“The music has stopped playing,” said Frederic Neumann, a co-head of Asian economics at HSBC, which on July 9 slashed its growth forecasts for Asia, outside of Japan, to 6.1 percent for this year and 6.5 percent next year. The bank had projected 7.2 percent growth for both years.

One week later, the Asian Development Bank followed suit, trimming 0.3 percentage point off its projections for developing Asia. (The bank’s definition includes more countries than HSBC’s.) That leaves it with forecasts of 6.3 percent expansion this year and 6.4 percent in 2014.

The region was expected to bounce back from its “relatively sluggish” growth pace in 2012 but is now expected to pick up “only slightly,” the bank said in its regular review of the region’s economic outlook.

And Wednesday, the latest evidence of weakness in the Chinese economy emerged in the form of a survey that showed manufacturing activity in July contracting at its quickest pace since last summer. The survey, compiled by the research firm Markit and released by HSBC, produced a reading of 47.7 points for this month, down from 48.2 in June. A figure below 50 signals contraction.

As Mr. Neumann put it: “The air is getting thinner.”

This is also bad news for the rest of the world, which had been hoping that booming expansion in Asia could inject some much-needed oxygen into a global economy that is weighed down by anemic growth in the West.

The problem for developing Asia is that two of its main drivers of growth — China’s once red-hot economy and an inflow of money prompted largely by the Federal Reserve’s efforts to revive American growth — have fizzled.

Since May, when the Federal Reserve chairman, Ben S. Bernanke, signaled that the United States economy might soon be ready to be weaned off the huge purchases of Treasury securities it has been enjoying since the global financial crisis, emerging markets around the world have watched investors pull their money out of assets they deemed more risky.

While the Dow Jones industrial average and the Standard Poor’s 500-stock index in the United States have soared to record highs, stocks in most Asian markets have sagged, with key market indexes in Indonesia, the Philippines and Thailand down about 9 percent since mid-May.

Currencies like the Malaysian ringgit, the Philippine peso and the Thai baht have all dropped about 5 percent against the dollar. In Indonesia, the rupiah fell earlier this month to 10,000 per dollar for the first time since September 2009.

In India, the rupee is hovering near its weakest-ever level against the dollar, prompting the central bank to announce a number of steps this month aimed at arresting the currency’s slide. And Indonesia and Thailand recently lowered their growth forecasts for 2013.

To a large extent, the declines are not unexpected after a period of strong gains, as investors in search of high returns poured into Asian markets over the past few years. Analysts had long warned that the inflows could reverse if conditions changed.

Now that that has happened, economists at Australia New Zealand Banking Group wrote in a recent report, the region is “facing the consequences of having drunk too readily from an abundance of virtually free credit.”

For the most part, companies are well financed, analysts say, and the recent turmoil does not herald imminent collapses or a flood of defaults. But it has, at least for now, turned off the faucet on the cash that had helped fuel Asia’s recent growth spurt.

“The region’s leverage-driven growth model has come to an end,” said Mr. Neumann of HSBC.

What is more, the jitters about the Federal Reserve’s bond-purchase plans have coincided with rising nervousness about China’s cooling economy.

After years of powering ahead at growth rates of more than 10 percent a year, China is now in the throes of a major economic overhaul aimed at raising productivity and domestic demand.

But that revamp comes with slower growth. The economy — the second-largest in the world after that of the United States — could struggle to grow at a rate of 7.5 percent this year.

Article source: http://www.nytimes.com/2013/07/25/business/global/asian-economies-encounter-stiff-winds.html?partner=rss&emc=rss

I.M.F., Predicting Slower Growth for China, Urges Overhauls

HONG KONG — The International Monetary Fund on Wednesday trimmed its growth forecast for China, flagged concerns about the rapid expansion in lending in the country’s vast economy and urged a “decisive” push for overhauls it argues would put the economy on the path toward sustainable growth.

The lowered forecast — the I.M.F. shaved a quarter of a percentage point off its previous projection for 8 percent growth in China, to 7.75 percent — was the latest in a string of similar reductions by analysts in recent weeks. And although the new projection remains above the Chinese government’s target of 7.5 percent growth, the I.M.F.’s revision and comments underlined the challenges facing policy makers as they try to revamp the world’s second-largest economy after the United States.

Chinese government data for the first quarter of the year showed that the pace of economic growth had slowed to 7.7 percent — markedly below what most analysts had expected. Other economic data for April and May also have been lackluster.

In the short term, recent credit expansion, combined with a mild pickup in the global economy, is expected to lift China’s growth rate in the second half of this year, the International Monetary Fund said after concluding an annual review of the Chinese economy.

But longer term, major efforts are needed to rebalance the economy and address problems like soaring income inequality and environmental degradation, which built up amid the headlong expansion of the past few decades.

The rapid growth in credit in recent years also has emerged as a major source of concern among analysts, who worry that the accumulation of debt brings substantial risks, including asset price bubbles and potentially destabilizing defaults.

The I.M.F. added its voice to the chorus of warnings about the so-called shadow-banking system — lending outside the regulated banking system, which has been growing rapidly in the past few years.

The growth in credit, the I.M.F. said, “raises concerns about the quality of investment and its impact on repayment capacity, especially since a fast-growing share of credit is flowing through less-well supervised parts of the financial system.” Growth, it added, has become “too dependent on the continued expansion of investment, much of it by the property sector and local governments whose financial position is being affected as a result.”

Policy makers in Beijing are well aware of these issues and are aiming to bring about more balanced, higher-quality growth that will improve living standards and household incomes.

The I.M.F. said it was “reassured” by the authorities’ focus on the financial sector and fiscal reforms, adding that “reining in total social financing growth is a priority and will require further tightening of prudential oversight.” Such policies may slow activity in the short term, the I.M.F. said, but they would do so “in a way that supports the transition to a more sustainable growth path.”

While China still has “significant policy space and financial capacity to maintain stability” the I.M.F. said, “the margins of safety are narrowing” and a “decisive impetus to reforms is needed to contain vulnerabilities and move the economy to a more sustainable growth path.”

Article source: http://www.nytimes.com/2013/05/30/business/global/imf-predicting-slower-growth-for-china-urges-overhauls.html?partner=rss&emc=rss

Wall Street and Gold Slump

The prices of stocks and gold appeared to chase each other sharply lower on Monday after a report said growth unexpectedly slowed in China.

The stall in the rise of the world’s second-largest economy pushed Wall Street’s broadest stock index down 2.3 percent by the close of trading and put heavy selling pressure on gold, oil and other commodities.

The price of gold, which has been steadily drifting lower since the worst of the Great Recession passed, dropped another 9 percent Monday after a 5 percent drop on Friday. The market price of an ounce of gold ended trading in New York at a multiyear low; the April contract closed at $1,360.60, down $140.40.

Stocks, too, were continuing a pullback that began Friday after a report on falling retail sales for March. The Standard Poor’s 500-stock index slumped 2.3 percent, while the Dow Jones industrial average fell 1.8 percent — more than 260 points — and the Nasdaq composite index lost 2.4 percent.

“None of the economic data has been very good for the last couple of weeks,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vt., told Reuters. “I wouldn’t say this is over yet, but there are enough indicators out there to really indicate that investors should approach this market with a degree of caution which doesn’t seem to exist right now.”

China’s economy expanded 7.7 percent in the first quarter, according to a government report. While that would be far above most industrial economies, it fell well short of forecasts for an increase of 8 percent and slowed from 7.9 percent during the final quarter of 2012.

Analysts described the data variously as “a big disappointment” and a “truckload of unpleasant surprises.” The Chinese economy finally began to pick up steam toward the end of last year. The data released Monday, however, suggested that the gradual recovery was proving more fragile than most analysts had expected.

Other preciious metals were hit by heavy selling: Silver fell to its lowest since October 2010, platinum to its weakest since August and palladium to a three-month low. And crude oil was off 1.8 percent in New York trading to $89.69 after a 2 percent drop Friday.

Article source: http://www.nytimes.com/2013/04/16/business/daily-stock-market-activity.html?partner=rss&emc=rss

Chinese Manufacturing Data Suggest Muted Recovery

HONG KONG — A survey of manufacturing activity in China on Thursday provided more reassurance that the Chinese economy, buoyed by somewhat improved global trade and a string of government stimulus measures last year, has settled into a muted recovery.

The reading of the purchasing managers’ index, published by the British bank HSBC, rose to 51.9 in January from 51.5 in December. It was the fifth consecutive improvement in the monthly index, and took the number to its highest level in two years.

The early version of the HSBC index, which is based on about 90 percent of the survey results, provides one of the earliest insights into the world’s second-largest economy each month, and is thus closely watched by analysts and investors.

“The upbeat manufacturing PMI reading heralds a good start to China’s economic growth into the New Year,” commented Qu Hongbin, chief China economist for HSBC, in a note accompanying the data release. While export growth was likely to remain tepid, he added, infrastructure construction was regaining momentum, and companies had started to step up hiring and manufacturing again.

The reading underlined a picture that has been crystallizing since last year: That the years of double-digit growth are a thing of the past, and that China’s economy has, for now, settled into a more modest pace of expansion.

Data released last week showed that the Chinese economy expanded just 7.8 percent last year — from 9.3 percent in 2011 and 10.4 percent in 2010.

The last few months have shown an improvement as government-mandated measures aimed at propping up growth filtered through to the economy.

But that recovery has been modest. The January HSBC index released Thursday, for example, was just 4.3 points higher than its last trough in August, Mr. Qu noted. By comparison, the rebound of 2009 saw the index jump more than 9 points in just five months.

End

Article source: http://www.nytimes.com/2013/01/25/business/global/chinese-manufacturing-data-suggest-muted-recovery.html?partner=rss&emc=rss

Heavy Lending Creates a Surge in Chinese Economy

BEIJING — The Chinese economy grew faster than expected last month even as inflation slowed, official statistics showed on Friday, as the government continued heavy lending through its state-owned banks to rekindle growth.

The latest data, including industrial production, retail sales, fixed-asset investment and electricity generation, were stronger than most economists had anticipated. They presented a consistent picture of an economy that is starting to show real growth again after a very weak spring and summer.

“It has become increasingly clear that the Chinese economy is now moving in a better direction,” Zhou Xiaochuan, the governor of the People’s Bank of China, the central bank, said at a news conference Thursday, before the October figures were publicly released.

Bank economists increasingly agree. “October’s growth data delivered pleasant upside surprises across the board, providing fresh evidence that the economy has indeed bottomed out thanks to the filtering through of Beijing’s policy easing,” Sun Junwei, a China economist at HSBC, wrote in a research report Friday afternoon.

To be sure, the economic statistics released by the government Friday showed a return to the fairly strong economic expansion that prevailed through much of last year and early this year, and not a return to the torrid, double-digit growth that China has enjoyed for much of the last decade.

Australia New Zealand Banking said in a research note that the latest figures were consistent with 8 percent economic growth in the last quarter of this year and even faster expansion in the first quarter of next year.

Growth had weakened to 7.4 percent in the third quarter and 7.6 percent in the second quarter, according to official statistics. Many economists have been suspicious that even the figures from earlier this year might have been overstated, given the weakness in categories like electricity generation, which grew barely at all in the second quarter and only slowly in the third quarter.

By contrast, the economic expansion this autumn appears more broadly based. Business executives have begun to describe recovering exports and domestic sales, and cranes have begun moving again on the skylines of big cities like Guangzhou and Beijing.

Steel mills and concrete factories are busier. Power generation increased 6.4 percent last month from the same period a year ago, its strongest gain since March, although still well below the double-digit annual gains in previous years.

But the renewed growth has been fueled by rapidly mounting debt, as state-owned banks and the central bank have funneled hundreds of billions of dollars in additional lending to state-owned enterprises and government agencies to finance further investment projects.

Stock markets in China, Hong Kong, Australia and South Korea were all down about half a percent in late afternoon trading, or about half the loss Thursday on Wall Street, as good news from China seemed to partially offset global worries about the so-called fiscal cliff in the United States and economic troubles in Europe.

The Chinese National Bureau of Statistics said Friday that industrial production had risen 9.6 percent in October from the same month a year earlier, compared with 9.2 percent in September and 8.9 percent in August. Retail sales were up 14.5 percent in October from a year earlier, compared with 14.2 percent in September, even though slower inflation at the consumer level was acting as a brake on the increase in retail sales.

Fixed-asset investment was up 20.7 percent for the first 10 months of this year, after having been up 20.5 percent for the first nine months of this year. China releases only year-to-date figures for fixed-asset investment, partly because of the difficulty in tracking when money is actually spent on big construction projects.

Consumer prices were up only 1.7 percent in October from a year ago, compared with an increase of 1.9 percent in September. Western economists had expected inflation in China to stay steady in October instead of slowing.

Producer prices were down 2.8 percent in October from a year ago, a slightly faster pace than the 2.7 percent decrease that economists had expected but not as fast a decline as in September, when they were down 3.6 percent.

China has begun a once-a-decade leadership transition at its Party Congress, which began in Beijing on Thursday and will last through the middle of the coming week.

Article source: http://www.nytimes.com/2012/11/10/business/global/heavy-lending-creates-a-surge-in-chinese-economy.html?partner=rss&emc=rss

Manufacturing in China Grows Only Slightly in December

BEIJING — Big manufacturers in China narrowly avoided a contraction in December a survey showed Sunday, but downward risks persist and suggest that the Chinese economy will need fresh policy support to counter a slowdown in growth.

The official purchasing managers’ index, which is compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, rose to 50.3 in December from 49 in November.

That indicated a slight expansion in business activity in the vast Chinese factory sector, but the reading was barely above 50, which separates expansion from contraction.

The index fell below 50 in November for the first time since early 2009.

Analysts had expected the official purchasing index to be at 49.1 in December.

“The rebound in the December P.M.I. shows that there will be no big slowdown in the Chinese economy,” Zhang Liqun, a researcher with the Development Research Center of the State Council, wrote in a statement accompanying the survey.

The economy faces downward pressure, but there are positive elements that could underpin growth, the researcher said.

The new orders subindex rose to 49.8 in December, from 47.8 in November, while the subindex for new export orders rose to 48.6 from 45.6 in November.

A similar survey Friday by HSBC and Markit, a British data provider, which captures data from smaller factories, moved up to 48.7 in December from a 32-month low of 47.7 in November.

But the private survey signaled a modest contraction in activity on the month.

Despite the rise in the official survey, it is stuck near its weakest levels since early 2009.

Economists at Citibank said China was more likely to take policy steps to combat what the bank saw as a tangible slowing of economic activity.

“Accumulating evidence of economic weakness would herald more policy easing in the months ahead, starting with another” required reserve ratio cut by the Chinese New Year, Citibank said in a note to clients.

“Although domestic consumption held up steadily, its contribution may have been more than offset by weakened investment activity and deteriorating foreign trade conditions,” the note said.

China’s central bank is in the spotlight, with many analysts expecting that it will soon announce a cut in the required reserve ratio that it demands commercial lenders hold.

The central bank cut the ratio by 0.5 percentage points on Nov. 30 from a record high of 21.5 percent.

Cutting the ratio frees up funds that could be used for lending to support growth, but China’s leaders remain wary of relaxing their grip too soon on inflation.

The official survey showed that a significant drop in price pressures in November did not follow through to December.

The prices subindex of the official purchasing managers’ index rose to 47.1 from 44.4 in November.

Article source: http://www.nytimes.com/2012/01/02/business/global/02iht-yuan02.html?partner=rss&emc=rss

Chinese Economy Cools Slightly in Third Quarter

BEIJING — China’s economy pulled back a bit from its pell-mell pace in the third quarter, the government said Tuesday, as measures to rein in inflation and head off speculation put a brake on growth.

The measured slowdown raised hopes among economists that the steps taken so far would bring the economy to a so-called soft landing, with moderate growth and lowered inflation, instead of a steep decline.

Some analysts remained worried, however, that the European Union’s debt crisis could lead to a sharp drop in Chinese exports, placing China’s economy at greater risk.

The National Bureau of Statistics said gross domestic product had grown 9.1 percent in the quarter, compared with growth in the same period last year, and down from 9.5 percent in the previous three months. That was slightly below consensus forecasts and made the quarter the fourth in a row in which G.D.P. growth had declined.

Year-to-date growth averaged 9.4 percent, basically unchanged from the first half of 2011.

Despite the economy’s slower pace, industrial production continued to rise. It was up 13.8 percent in August over the previous year, compared with 13.5 percent in July. Real estate sales jumped 17.7 percent over August a year ago.

Measured over the quarter, however, industrial production was basically flat, another sign of cooling growth.

The statistics bureau said in a statement that the economy had “generally carried good development weight and kept moving towards the expected direction of macroeconomic control.”

Some analysts were less sanguine.

“While relatively robust headline growth may provide some comfort to Chinese policy makers, some leading indicators show continued downside pressure,” Alastair Thornton of ISB Global Insight in Beijing wrote in a note on the data.

Most notably, he said, surveys of purchasing managers pointed to “sharply deteriorating demand” for Chinese exports, which remain the foundation of the economy.

In an interview, Mr. Thornton said growing problems in Europe, China’s largest trading partner, could shock the Chinese economy, no matter what the government does. But the greater threats, he said, are medium-term problems, including over-investment in some types of real estate, mounting local government debt and an essentially unregulated shadow banking system.

“Domestically speaking, I think China’s pretty safe for the next year or so,” he said.

China’s economic planners have been trying for months to cool down an economy that many experts said was at risk of becoming dangerously overheated. In the past year, the government has raised interest rates five times, restricted the number of homes a purchaser can buy and curbed bank lending in an effort to brake growth.

Inflation has remained stubbornly high, despite those and other measures, and consumers have been hit especially hard by skyrocketing food prices. But most analysts say they believe price increases will moderate with slowing economic growth and an increase in food supplies from the autumn harvest.

China’s stock markets fell on the news and on fresh worries about the European debt crisis. The Shanghai composite index closed 2.3 percent lower, and in Hong Kong, the Hang Seng index had slumped more than 4 percent by late afternoon.

Article source: http://www.nytimes.com/2011/10/18/business/chinese-economy-cools-slightly-in-third-quarter.html?partner=rss&emc=rss

China’s Export Growth Eases Amid Global Turmoil

Trade data from China for September, released by the customs office, showed that the country’s booming pace of export growth has begun to ease as the global upheaval and a gradual rise in the value of the renminbi are taking their toll.

Both exports and imports still rose solidly last month — up 17.1 percent and 20.9 percent, respectively, compared to a year earlier, showing that global trade has by no means collapsed.

China’s trade surplus narrowed to $14.5 billion in September, from $17.8 billion in August. But the slimmer surplus was unlikely to fully defuse criticism from U.S. lawmakers who argue that Beijing is keeping the renminbi unfairly low against the U.S. dollar.

On Tuesday, the U.S. Senate passed a bill that would impose tariffs on certain Chinese goods if the Treasury Department determined that China was undervaluing its currency to its advantage.

“We think the probability of this currency bill being turned into a law remains very low, given the public opposition already voiced by the U.S. president and leading House Republicans,” said Yao Wei, an economist at Société Générale in Hong Kong, in a research note. “However, this standoff is likely to continue distorting the short-term path of the yuan, as China does not appreciate the U.S.’s attempts to bully it.”

Beijing has allowed a gradual appreciation in the renminbi since mid-2010. But the authorities are resisting calls for a faster rise in the currency, in part because they resent the pressure from the United States and in part because they fear that this would hurt Chinese exporters.

Lu Peijun, the deputy head of the Chinese customs administration, underlined that point on Thursday: “The rise in renminbi exchange rate may limit the room for export growth,” he said, according to Reuters.

Although the Chinese economy is growing less rapidly, many economists believe that China is headed for a gradual slowdown, rather than a sharp, shocking halt.

Still, the September trade figures were below what economists had been expecting and represented a marked slowdown from August, when exports rose 24.5 percent and imports by 30.2 percent.

As such, they highlighted that the upheaval generated by the debt crisis in Europe, and by the feeble nature of the U.S. economy, is denting trade activity around the globe.

“Although Chinese exports remain close to record levels, some impact from weaker global growth was to be expected, and the fall in year-on-year growth in September suggests this is starting to happen,” Brian Jackson, an emerging markets strategist at the Royal Bank of Canada in Hong Kong, commented in a note to clients.

This partly reflects not only slower growth in major trading partners but also a recent loss of competitiveness for Chinese exporters as a result of currency moves, he added.

“We don’t expect China’s exports to collapse as sharply as they did at the end of 2008, but risks are definitely skewed to a further moderation in external demand in coming months,” Mr. Jackson said.

The International Monetary Fund, meanwhile, on Thursday echoed the general sense of worry about the global outlook, tempered with a degree of confidence about Asian domestic demand, which is helping to cushion the region from the global upheaval.

“Domestic demand is still resilient, and it should continue to sustain activity across the region,” the I.M.F. said in its regional economic outlook for the Asia-Pacific region.

The fund forecast relatively robust growth of 6.3 percent for the region this year and 6.7 percent in 2012 on average, slightly below a previous forecast of 6.8 percent for 2011 and 6.9 percent for 2012 made in April.

Nevertheless, it stressed that an escalation of the financial turbulence in the euro zone and a more severe slowdown in the United States would have “clear macroeconomic and financial spillovers to Asia.”

“Asia has clearly not ‘decoupled’ from advanced economies,” the I.M.F. said.

Article source: http://www.nytimes.com/2011/10/14/business/global/china-exports-trade-surplus.html?partner=rss&emc=rss

Surveys Point to Slowdowns in Euro Zone and China

LONDON — While most investor attention was focused on a meeting of European leaders attempting to resolve the Greek debt crisis, survey data released Thursday suggested a backdrop of stagnating economic activity in the euro zone and softening output in China.

The composite euro zone purchasing managers’ indexes, known as P.M.I.s and complied by Markit, showed growth in the euro area’s manufacturing and service sectors stalled in July, with the composite index showing its lowest reading in 23 months.

In China, a closely watched survey of purchasing managers produced the lowest level in 28 months, according to HSBC, which published the index.

That suggested that a series of regulatory and policy measures is having the desired effect of cooling the red-hot Chinese economy.

The euro zone composite P.M.I. fell to 50.8 in July from 53.3 in June, Markit said. The consensus forecast among economists had been for a more modest decline to 52.6. The drop in the P.M.I.s was broad, with the services index slowing to 51.4 from 53.7 and manufacturing falling to 50.4 from 52.

The indexes provide a fairly good indication of where quarterly economic growth rates are heading, according to analysts.

Nick Kounis, head of economic research at ABN Amro in Amsterdam, said higher oil prices, budget cuts and the global economic slowdown having been dragging on growth in Europe.

“More recently,” he added, “it’s possible that business confidence also took a blow because of the escalating sovereign debt crisis.”

He said the P.M.I.’s current levels were consistent with a slowdown in euro area growth in the third quarter to flat or up just 0.1 percent from the previous quarter. The region posted a preliminary growth rate during the second quarter of 0.2 percent after a gain of 0.8 percent in the first three months.

“The slowdown in euro zone G.D.P. growth to near-stagnation levels is another warning shot to Europe’s leaders about the high stakes at today’s summit,” Mr. Kounis said. “It might not take too much of a shock to push the economy into recession from these levels.”

The releases of both sets of data came before European leaders reached an agreement Thursday in Brussels on new aid for Greece.

In China, the vast manufacturing sector appears to have contracted in July for the first time in a year, according to the closely watched HSBC survey.

The initial results of the poll of purchasing managers produced a reading of 48.9 in July, the lowest level in 28 months and down from 50.1 in June. The final reading will be released Aug. 1.

Readings below 50 represent contraction, so the slide below that level indicated that manufacturers had seen business slow markedly over the past few months, based on a combination of feeble global demand and tighter conditions at home.

For the past year and a half, Chinese policy makers have used a wide variety of tools to rein in booming growth and limit the rising prices that have accompanied it. Formerly free-flowing bank loans have become harder to obtain, for example, as banks were instructed to lend less.

Those measures have slowed the economy, but at a gradual pace that leaves room for still more tightening by Beijing in the coming months, most analysts say.

A P.M.I. reading of below 50 does not imply a “hard landing” for China, said Qu Hongbin, chief China economist at HSBC.

Industrial growth is likely to continue to decelerate in the coming months as tightening measures filter through, Mr. Qu said, but “resilient consumer spending and continued investment in ongoing mass infrastructure projects should support a G.D.P. growth rate of almost 9 percent for the rest of this year.”

The International Monetary Fund echoed that sentiment in its latest assessment of the Chinese economy, published Thursday, noting that “China’s near-term growth prospects continue to be vigorous and are increasingly self-sustained, underpinned by structural adjustment.”

“Wage and employment increases have fueled consumption, the expansion in infrastructure and real estate construction has driven investment upward, and net exports are once again contributing positively to economic growth,” the fund said.

The I.M.F. projects 9.6 percent economic growth for China this year, and 9.5 percent expansion for 2012, in line with many other forecasts. That is down from 10.3 percent last year, but well above what developed nations like the United States are managing.

But an aging population and gradually shrinking labor force risks fanning inflation in the longer term, the I.M.F. said, while low interest rates and a lack of places for savers to invest their cash mean there is a lingering risk of bubbles in the already hot property sector.

Those factors could lead to potential “significant risks” to financial and macroeconomic stability in China, the fund said, and it urged Beijing to address the challenges by raising interest rates further and allowing the renminbi to strengthen.

Beijing has so far relied heavily on so-called reserve requirement ratios for lenders as a policy tool. Successive increases in the ratio since early last year have gradually restricted the amount of money banks have been able to lend. Interest rate increases came into the policy mix relatively late: The central bank began nudging rates up again in October 2010.

Bettina Wassener reported from Hong Kong.

Article source: http://feeds.nytimes.com/click.phdo?i=203c39b99e0bd3b161f1914cb3746c55

Chinese Manufacturing Slows Down

HONG KONG — The vast Chinese manufacturing sector appears to have contracted in July for the first time in a year, according to a survey released Thursday, adding to the mounting evidence that a series of official regulatory and policy measures is having the desired effect of cooling the red-hot Chinese economy.

The initial results of a closely watched survey of purchasing managers produced reading of 48.9 in July, the lowest level in 28 months — down from 50.1 in June, said HSBC, which published the index.

Readings below 50 represent contraction, so the slide below that level indicated that manufacturers had seen business slow markedly over the past few months, thanks to a combination of feeble global demand and tighter conditions at home.

For the past year and a half, policy makers have used a wide variety of tools to rein in booming growth and limit the rising prices that have accompanied it. Formerly free-flowing bank credits have become harder to obtain, for example, as banks were instructed to lend less.

Those measures have slowed the economy, but at a gradual pace that leaves room for still more tightening by Beijing in coming months, most analysts say.

The below-50 P.M.I. reading does not imply a “hard landing” for China, said Qu Hongbin, chief China economist at HSBC.

Industrial growth is likely to continue to decelerate in coming months as tightening measures filter through, Mr. Qu noted, but “resilient consumer spending and continued investment in ongoing mass infrastructure projects should support a G.D.P. growth rate of almost 9 percent for the rest of this year.”

The International Monetary Fund echoed that sentiment in its latest assessment of the Chinese economy
, published Thursday, noting that “China’s near-term growth prospects continue to be vigorous and are increasingly self-sustained, underpinned by structural adjustment.”

“Wage and employment increases have fueled consumption, the expansion in infrastructure and real estate construction has driven investment upward, and net exports are once again contributing positively to economic growth,” the fund said.

The I.M.F. projects 9.6 percent economic growth for China this year, and 9.5 percent expansion for 2012, in line with forecasts by many other economists. That is down from 10.3 percent last year, but well above what developed nations like the United States are managing.

But an aging population and gradually shrinking labor force risks fanning inflation in the longer term, the I.M.F. said, while low interest rates and a lack of places for savers to invest their cash mean there is a lingering risk of bubbles in the already hot property sector.

Those factors could lead to potential “significant risks” to financial and macroeconomic stability in China, the fund said, and it urged Beijing to address the challenges by raising interest rates further and allowing the renminbi to strengthen.

Beijing has so far relied heavily on so-called reserve requirement ratios for lenders as a policy tool. Successive increases in the ratio since early last year have gradually restricted the amount of money banks have been able to lend. Interest rate increases came into the policy mix relatively late: the central bank began nudging rates up again in October 2010.

“While the central bank’s monetary goals are the right ones, the means by which these targets are being achieved is moving in the wrong direction, relying on an increasingly complicated array of tools and administrative controls that will be difficult to effectively sustain,” the I.M.F. said in its report.

“The central bank should, instead, rely more on higher interest rates and open market operations.”

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