More faint signs of a slowdown in Chinese manufacturing, but they are nothing to get excited about, despite the attempt to do so by some analysts.
Of more importance is how the Chinese Yuan is being revalued forcibly by the falling US dollar.
The Yuan is now under 6.5 to the greenback, and up 1.8% this year and nearly 5% since it was floated from the peg in June of last year.
On a trade weighted basis, the Chinese currency’s value is up around 17% in the same time, which helps explain the slowing level of activity in exports and therefore in manufacturing.
There are now estimates circulating in Beijing suggesting that China’s trade surplus will again fall this year, and not rise as some groups, such as the IMF have forecast.
The China Economic Times reported last week that the country’s trade surplus may narrow to $US140 billion in 2011 from $US183.1 billion last year, due to surging global commodities prices and a deteriorating external trade environment.
The paper said the Development Research Center of the State Council said in a report that China’s international balance of payments will become "more reasonable" this year. (I.e. the surplus won’t cause so much friction).
The report said China’s economy will grow about 9% in 2011, but it indicated domestic inflation hasn’t peaked yet, and inflation pressure still exists.
In fact a couple of media reports last week (leaks?) suggested that the CPI for the year to May would rise to 5.5% when the figures are released next week.
China posted a $US1.02 billion trade deficit in the March quarter, its first quarterly deficit in seven years. Exports were still solid, but the growth rate was down on a year ago. The price of imports soared through as higher prices for oil, fuels and raw materials boosted their cost and pushed the trade account into the red.
The pressures from the soaring import bill, slowing demand for exports makes the static reports from manufacturing a little easier to understand.
The country’s manufacturing sector PMI, a key measure of the outlook for industrial growth, dropped to 52.9 percent in April, according to the state controlled China Federation of Logistics and Purchasing (CFLP).
The PMI figure was 53.4% in March, 52.2% in February and 52.9% in January.
A reading above 50% indicates economic expansion, while below 50 indicates contraction. China’s PMI has remained above the boom-and -bust line for 26 consecutive months.
The rival April survey from HSBC showed no change on the 51.8% reading in March.
The CFLP data indicated that the new orders index, which reflects domestic demand, fell 1.4 percentage points to 53.8% in April.
And the survey’s import index slid 1.4 percentage points to 50.6% and the new export order index dropped 1.2 percentage points to 51.3% in April.
The purchasing price barometer, a sub-index that measures the cost of raw materials, fell 2.1 percentage points to 66.2% in April, suggesting price rises are easing.
HSBC’s survey showed the pace of inflation of companies’ input and output prices moderated to eight-month lows, but both remained above their long-term averages, showing stubborn inflation pressures.
The input prices subindex fell to 62.4 in April from 69.5 in March, but remained above the long-term average of 60. Similarly, the output prices subindex fell to 55.2 from 56.1 in March, compared to the long-term average of 53.3.
The World Bank last week lifted its forecasts for China’s gross domestic product growth to 9.3% this year from 8.7% previously, and 8.7% next year from 8.4%.
The upward revision is based on the country’s stronger-than-expected performance in the fourth quarter of last year and the first quarter of 2011, it said.
China’s GDP grew 9.7% from a year earlier in the first quarter.
According to official government estimates, GDP rose by 8.7% from the previous quarter on an annualized, seasonally adjusted basis, but the World Bank’s own estimates of on-quarter growth are slightly higher.
The bank forecasts that China’s consumer price index will rise by 5.0% this year and 3.4% next year, up from its previous forecasts of a 3.3% rise in both years.
