China keeps on slowing down


On July 24, the markets took a cold shower. China’s Flash PMI for July released by HSBC fell to 47.7 from 48.2 in June. This data (47.7) disappointed and even frightened the market. First, this is the lowest level in eleven months. Secondly, it is the third consecutive drop. The index components look even more alarming: new orders sub-index has been falling for three months in a row, while the employment sub-index shows the largest drop in four years. HSBC analysts draw analogies to the first months after the global crisis of 2008-2009.

The next step will depend on Chinese authorities, who have stoically (or confucianly) ignored all data showing a slowdown in the national economy.

Let me remind you that in the fourth quarter of 2012, China’s GDP rose by 7.9% y/y and by 7.7% y/y in the first quarter of 2013; in the second quarter of 2013, it rose by 7.5% y/y. This data has questioned the target of 7.5% y/y, which was supposed to be reached by the end of this year. However, the party and the government still prefer not to take any measures to support the economic growth. Chinese officials have repeatedly stated that the achievement of this target is not a top priority for the government, so a modest growth will also satisfy the country. Re-orienting the country’s economy from foreign to domestic market and increasing the standard of living are much more important, they stated. So, we can conclude that the Chinese authorities consider economic stimulus as undesirable measures.

However, now they won’t be able to avoid these problems, as the HSBC report has also mentioned the standard of living, which has top priority, as decreasing employment data is also unavoidable. Many economists suppose that this data will result in increasing government spending on infrastructure projects. Just the same way was chosen by Russian government that had decided to allocate funds from the National Welfare Fund to infrastructure development.


About Author

I have been friend with currency market since 2006. I hope that this friendship is not only useful to me, because over the years I have repeatedly provided analytical services to various companies and media outlets. I love fundamental analysis. Every day, I am convinced that the statistics is not boring numbers but fascinating reading, which, moreover, can predict the future. Technical analysis is also not neglected, especially as my hobby - finding effective algorithms for automated trading systems.