New Data Show China’s Rise Slowing

New Data Show China’s Rise Slowing
By BETTINA WASSENER
Copyright by The New York Times
Published: June 30, 2010
http://www.nytimes.com/2010/07/02/business/global/02asiaecon.html?hp


HONG KONG — Two closely watched measures of the manufacturing sector in China declined in June in the latest sign that Beijing’s efforts to scale back stimulus have begun to moderate the growth of the world’s largest developing nation.

A manufacturing purchasing managers’ index, compiled by the China Federation of Logistics and Purchasing and released on Thursday, came in below expectations at 52.1, down from 53.9 the previous month. A similar index by HSBC also sagged, from 52.7 in May to 50.4 in June.

Readings above 50 indicate expansion, so the June figures showed that the Chinese manufacturing sector is still growing. But the declines confirmed what many economists have long projected: that the pace of China’s growth probably hit its highest level during the first quarter of this year and that more modest rises are now in store — a situation that has been largely engineered by the country’s authorities in a bid to prevent the economy from overheating.

Tao Wang, an economist at UBS in China, wrote in a report this week previewing the June data that “economic growth is strong but momentum has peaked.”

Qu Hongbin, chief China economist at HSBC, commented in a statement accompanying the bank’s P.M.I. release Thursday that fears that China could experience a hard landing were “overplayed.”

“We expect China to achieve around 9 percent growth in the second half, underpinned by massive ongoing investment and robust private consumption,” he wrote.

And analysts at Barclays Capital commented in a note that better-than-expected export figures from South Korea in June, also released Thursday, were “another reminder that growth in Asia may not be about to keel over just yet.”

Still, Europe’s sovereign debt woes, and a rash of labor unrest in China, are expected to add to Chinese companies’ difficulties in coming months, while the slight rise in the renminbi that the authorities are now permitting will squeeze margins for exporters.

Financial markets in China and elsewhere in Asia reacted badly to the signs of slowing growth and to the accompanying uncertainty as to what policy measures Beijing might still implement.

The Shanghai composite index, the main market gauge for mainland China, slipped 1 percent on Thursday, taking its total decline since the start of this year to 27 percent. The index has been one of the world’s worst performers so far in 2010, along with Greece.

“Our baseline scenario is for a soft landing in G.D.P. growth and rising but modest inflation,” Ms. Wang of UBS wrote in her note this week. “However, continued policy uncertainty, including in the property sector, and the decelerating sequential momentum will weigh on the market.”

So far this year, the Chinese authorities have launched an array of initiatives to rein in growth. These have ranged from instructing banks to extend fewer loans to moves designed to curtail the sharp price rises seen in much of the country’s property sector. Many economists expect the central bank to stage at least one small increase in interest rates before the end of this year.

In Japan, meanwhile, a quarterly survey conducted by the central bank and released Thursday showed a surprisingly sharp rise in business confidence among large manufacturers.

The reading in June stood at 1, compared with minus 14 the previous month.

A positive reading shows that optimists outnumber pessimists. The so-called Tankan survey also found that large manufacturers planned to increase capital spending slightly, indicating that, so far, an overall improvement in the economy is outweighing concerns about the potential impact of Europe’s debt worries and about the sharp decline in the euro against the yen and other currencies.

Still, despite the healthy Tankan reading, growth is expected to remain anemic in Japan, with economists at Credit Suisse, for example, forecasting expansion of 2.9 percent this year. China, by contrast, is widely projected to grow 10 percent in 2010, allowing it to overtake Japan as the world’s second-largest economy, after the United States.

Japan’s stock market took no comfort from the firm Tankan. The Nikkei 225 index ended 2 percent lower.

Indexes elsewhere also fell. In South Korea, the Kospi declined 0.7 percent, and the market in Australia, whose economy is highly dependent on Chinese demand for its mineral riches, dropped 1.5 percent.

The Straits Times index in Singapore was down about 0.6 percent by late afternoon, and in India, the Sensex fell 1 percent.

The Hong Kong market was closed for a public holiday.