More signs of the pace of growth in the Chinese economy slowing as the government moves to introduce a tax on property.
Figures out yesterday revealed that China’s huge manufacturing sector continuing growing in May, but at a noticeably slower pace than in previous months.
The Purchasing Managers Index from a government-controlled industry group fell to 53.9 from 55.7 in April, seasonally adjusted.
It means the rate of expansion has slowed, not reversed.
And a similar index from UK research firm Markit for HSBC, (the old CLSA survey) dropped to an 11-month low of 52.7 in May from the downwardly revised 55.2 in April.
Some economists said the indexes showed a fall because of a holiday in May.
The PMI did fall in May 2009, but by just 0.4 to 53.1, which is far less than the fall last month.
The release of the indexes came a day after Premier Wen Jiabao said in Tokyo that there was still a chance of a second economic slump and countries should be careful in withdrawing or ending stimulus spending.
In Tokyo, the Nomura/Japan Materials Management Association PMI rose to 54.7 in May from a revised 53.8 in the previous month. That was the biggest rise in manufacturing conditions since September 2006.
In Seoul, the HSBC/Markit purchasing managers’ index on South Korea’s manufacturing-sector activity fell to a seasonally adjusted 54.61 in May, from 57.06 in April.
The HSBC Taiwan Manufacturing PMI fell to 57.4 in May from 60.7 in April.
And the Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index dipped 3.5 points to 56.3 following a jump of 9.3 points in April.
US manufacturing activity grew for a tenth month in a row in May, but at a slower pace than in April.
The Institute for Supply Management’s (ISM) index of US manufacturing fell to 59.7 in May from 60.4 in April.
In China, the PMI revealed that an output index fell to 58.2 from 59.1 in April, the index report showed, with the new-order index down sharply to 54.8 from 59.3.
The export-order index dropped to 53.8 from 54.5 and the input-price index decreased to 58.9 from 72.6 (which could signal a start of an improvement in wholesale price inflation which had been running at more than 7% in recent months).
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.
Meanwhile China has revealed plans to introduce a tax on property in a new bid to cool the overheating property sector.
There have been rumours of such a tax being on the cards, but now it’s a reality.
In a statement Monday on its web-site and reported in the Chinese media overnight yesterday, the State Council said in a report on its 2010 plan for economic reforms that the government "will deepen fiscal and taxation system reforms by gradually advancing property tax reform, reforming resource and environment taxes, researching and implementing the personal income tax reforms, and improving consumption tax systems".
The statement did not detail the property tax reform plan.
At the same time other media reports said the Shanghai municipal government had also submitted its own property tax proposal to the government for approval.
The National Development and Reform Commission, the state planning agency whose real estate tax plan was approved by the State Council, didn’t give any further clues, according to the reports. But the news had an immediate impact on Chinese shares on Monday, forcing prices down 2.4%.
A tax on property would be a good earner for the central government and would give it a way of better controlling demand and supply and trying to match that to lending controls.
It could also be a way of helping the many local government bodies that have been playing in the property market and have huge loans, backed by land and property developments that are losing money and value as the controls on the sector tighten.
Already this year the central government has tightened controls on lending by cutting loans growth targets, forcing banks to check the security of their property loans, telling banks not to lend to developers using undeveloped land as security (it has to be established property) and told local governments to stop playing in the property sector and banned banks from funding them.
As well, people have been banned from buying a third home in some cities, such as Beijing and deposit requirements have been boosted for second homes. People from outside many of the major cities and towns are now not allowed to buy property until they have paid local taxes for a year.
As we have seen, these measures have hurt the stockmarket and caused prices to fall in many cities and towns, according to anecdotal reports.
But in the year to April, house prices in the country’s 70 major cities rose a reported 12.8% and some analysts say that the rise could have been as high as 18%.
