HSBC PMI Shows Beijing Pulling Levers on China GDP, Manufacturing

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China’s economy may require further fiscal stimulus to maintain current growth, the recent HSBC PMI survey suggests. The Chinese government deployed a “mini-stimulus” in July, reported the FT, using tax cuts for small businesses, assistance for exporters and increased investment in railway construction as tools to prop up the economy.

Beijing has also reported to have taken a breather in its three-year property market tightening campaign, even as housing prices have soared in the biggest cities, highlighting the conundrum facing the authorities: prices are rising unsustainably, stimulating property speculation, yet Beijing cannot clamp down too fiercely on the sector as it is such a significant engine of growth and domestic demand – not least for the steel and base metals industries.

The purchasing managers’ index (PMI) published by HSBC edged up to 50.2 in September from 50.1 in August. While that points to mild expansion for the manufacturing sector, said the FT, it is well below the preliminary survey result of 51.2 that had been announced just last week. Beijing’s official PMI numbers are due out next week and will likely show a higher increase than HSBC’s, skewed as they are to the state sector at the expense of reflecting the private sector.

The manufacturing supply chain has been re-stocking, but relatively slowly, according to HSBC, and has needed continuous policy efforts to sustain it. China’s economy slowed to 7.5% growth in the second quarter from 7.7% in the first quarter. Although most banks are not forecasting any further fall in growth in Q4, slowing steel demand suggests activity, at least among metal-consuming companies, and the construction industry is not set to accelerate in the remainder of the year.

The Asian Development Bank cut its forecast for economic growth in China this year and next year, saying it expects China’s economy to grow at 7.6% this year, sharply less than its earlier forecast in April of 8.2%; and 7.4% next year, also less than its earlier forecast of 8%.

Alaistair Chan, China economist at Moody’s Analytics, is quoted in the Telegraph as saying, “Clearly the recovery is not as strong as we thought.”

Keep an eye on our Monthly MMI Report series to see how China’s growth numbers affect metal prices.

Read more from Stuart Burns.

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