Following yesterday's 7% drop in China's Shanghai Composite Index, the Purchasing Managers' Index in China rose from 53.3 in July to 54.0 in August, signaling that the expansion in the manufacturing sector accelerated modestly in the latest month. A reading above 50 is expansionary.
China's economy has grown dramatically in recent months as well-directed stimulus money has bolstered growth and offset weak exports. Strong lending growth from the banks has also buttressed the expansion, but concerns that the government may restrict lending to prevent new bubbles from developing spooked the market yesterday and sent commodity prices spiraling lower today.
Although the world economy does appear to be poised for a rebound, and copper prices, which have historically been a precursor to economic activity, are well off the lows, a key measure of world activity, the Baltic Dry Index, has shown signs of weakness lately. And I will take a look at the pricing measure shortly.
Showing posts with label China. Show all posts
Showing posts with label China. Show all posts
Monday, August 31, 2009
Tuesday, August 11, 2009
China takes interesting turn
Still growing but are clouds brewing?
China's economy is definitely anchored what's been happening in Asia, and for that matter, has helped stabilized output around the world. In fact, the Economist recently noted that GDP in 2Q grew at an estimated 16.5% in the quarter just ended, according to Goldman Sachs. See A second look at China and GDP.
However, China's central bank has highlighted some of the risks to the expansion and a torrent of data that just hit suggests its concerns warrant some attention.
According to Bloomberg News, industrial production is still rising, albeit at a slower pace, but exports, which helped to drive growth earlier in the decade, remain weak as demand from the world's largest economies has yet to fully revive.
Lending plunged to $52 billion, a quarter of June's level, and fixed investment, though up an astounding 32.9% versus one year ago, missed expectations and appears to have rolled over, which is a little worrisome given it is a sign of spending by the government.
Taken together, the economy is still expanding but is not yet on a firm foundation and any tightening by the central bank will likely be delayed. Following the reports, commodity prices, including copper, are under pressure.
China's economy is definitely anchored what's been happening in Asia, and for that matter, has helped stabilized output around the world. In fact, the Economist recently noted that GDP in 2Q grew at an estimated 16.5% in the quarter just ended, according to Goldman Sachs. See A second look at China and GDP.
However, China's central bank has highlighted some of the risks to the expansion and a torrent of data that just hit suggests its concerns warrant some attention.
According to Bloomberg News, industrial production is still rising, albeit at a slower pace, but exports, which helped to drive growth earlier in the decade, remain weak as demand from the world's largest economies has yet to fully revive.
Lending plunged to $52 billion, a quarter of June's level, and fixed investment, though up an astounding 32.9% versus one year ago, missed expectations and appears to have rolled over, which is a little worrisome given it is a sign of spending by the government.
Taken together, the economy is still expanding but is not yet on a firm foundation and any tightening by the central bank will likely be delayed. Following the reports, commodity prices, including copper, are under pressure.
Tuesday, July 21, 2009
A second look at China and GDP
Is stimulus working too well?
Last week China reported that GDP accelerated in 2Q by a year-over-year rate of 7.9%, up from 6.1% y/y in 1Q.
I spotted an interesting article about China's recovery in the latest Economist that highlighted how strong China’s economy may be and the economic stimulus implemented by the government may be too much of a good thing.
The Economist noted that GDP grew at an annualized rate of 16.5% in the quarter just ended, according to Goldman Sachs, making it the economic envy of the world.
Note that U.S. GDP is reported on an annualized basis by taking actual growth in a quarter and roughly multiplying by 4. Year-over–year growth looks at where the economy is at the end of the quarter and simply calculates the percentage increase or decrease versus the prior year.
Source: The Economist
If Goldman Sachs is anywhere near correct (and they probably are in the ballpark). China’s stimulus plan is providing needed support at a time when exports are suffering from a deep global recession (Please take note: fiscal stimulus works best when funds are quickly spent on projects that have high economic returns, not high political returns).
But the Economist also said that the government has removed many of the restrictions on lending that had been designed to prevent overheating in the economy as well as cap rising inflation.
Inflation is nonexistent right now in the Asian powerhouse, but worries are beginning anew that runaway growth could fuel new bubbles.
Wednesday, July 15, 2009
China GDP accelerates
China's economy expanded by 7.9% in 2Q, up from 6.1% in 1Q and barely ahead of what most economists had estimated. Even more impressive, fixed asset investment, which includes roads, infrastructure, etc., continues to accelerate, rising 33.6% versus a year ago. So far it looks like the government's stimulus is overcoming weakness in the global economy and exports.
Although a solid rebound in activity appears to be developing, the government cautioned that "there are many difficulties and challenges that remain," momentum is unstable, and the recovery pattern is unbalanced. A spokesman added that proactive policies designed to support growth will continue.
US exports picked up in May, signaling a recovery may be in the works in Asia, and Intel (INTC) just reported a strong quarter and expects sales to climb in 3Q.
The upbeat comments from the world's largest maker of semiconductors are encouraging and and are giving way to renewed optimism that other multinationals may offer similar remarks.
Although a solid rebound in activity appears to be developing, the government cautioned that "there are many difficulties and challenges that remain," momentum is unstable, and the recovery pattern is unbalanced. A spokesman added that proactive policies designed to support growth will continue.
US exports picked up in May, signaling a recovery may be in the works in Asia, and Intel (INTC) just reported a strong quarter and expects sales to climb in 3Q.
The upbeat comments from the world's largest maker of semiconductors are encouraging and and are giving way to renewed optimism that other multinationals may offer similar remarks.
Wednesday, June 17, 2009
Where is China headed?
China's economy galloped ahead for much of the decade and gobbled up a sizable chunk of the world's raw materials, ending a 20-year deflationary cycle in commodity prices. When the US financial crisis erupted last September, fears of falling demand quickly pricked the speculative bubble and sent everything from silver to copper to oil down sharply in price.
There is now talk that China's economy will be among the first to emerge from the global recession, helping to lift developing economies in the region, while aiding countries dependent on commodities.
We are already seeing raw materials like copper, a key industrial metal, bounce off lows. See What can see glean from Dr. Copper. And that's a good sign for the global economy.
Furthermore, some of this buying appears to be coming from China, but there is also a speculative component that is anticipating renewed vigor late in the year, not just in China but also in the US.
That's why I found the Bloomberg article "Bubble of Belief" in China Economy Seen Bursting: Chart of the Day rather intriguing.
China is unlikely to return to its robust past if the US and other major economies remained mired in a recession because exports have been a solid driver of growth in prior years. But China continues to invest in infrastructure so it seems unlikely that China will sink into a severe recession.
Still, as pointed out on China Economy Watch, the Asian giant may just be stockpiling commodities and adding to manufacturing capacity - and doing this at a time when there is excess capacity around the world.
If the global economy experiences only a meek upswing over the next 6-12 months, Chinese demand for raw materials might quickly trail off, commodity deflation could reappear, and China's expansion may stall.
There is now talk that China's economy will be among the first to emerge from the global recession, helping to lift developing economies in the region, while aiding countries dependent on commodities.
We are already seeing raw materials like copper, a key industrial metal, bounce off lows. See What can see glean from Dr. Copper. And that's a good sign for the global economy.
Furthermore, some of this buying appears to be coming from China, but there is also a speculative component that is anticipating renewed vigor late in the year, not just in China but also in the US.
That's why I found the Bloomberg article "Bubble of Belief" in China Economy Seen Bursting: Chart of the Day rather intriguing.
China is unlikely to return to its robust past if the US and other major economies remained mired in a recession because exports have been a solid driver of growth in prior years. But China continues to invest in infrastructure so it seems unlikely that China will sink into a severe recession.
Still, as pointed out on China Economy Watch, the Asian giant may just be stockpiling commodities and adding to manufacturing capacity - and doing this at a time when there is excess capacity around the world.
If the global economy experiences only a meek upswing over the next 6-12 months, Chinese demand for raw materials might quickly trail off, commodity deflation could reappear, and China's expansion may stall.
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