CDT Money: Stimulus Talk Gaining Steam

Another week, another sign of strain within China’s economy as the central government steps up its public statements in support of a possible stimulus. Europe’s woes continue to weigh on China’s factory sector, with HSBC’s Flash Purchasing Managers Index (PMI) sliding to 48.7 in May as the index posted its seventh straight month in contractionary territory. HSBC’s PMI reading draws from a survey of small and medium-sized businesses and better reflects the health of China’s private sector, in contrast to an official reading of China’s state-owned manufacturers that the National Bureau of Statistics will publish this coming week. HSBC’s manufacturing figures are also typically more pessimistic than the official numbers, given that smaller companies tend to suffer more in an economic downturn than state-owned companies which have easier access to credit and are less exposed to foreign markets. Indeed, the two readings have diverged of late - official PMI has increased for five straight months and signaled a rebound for China’s factory sector in March and April. But with the government looking to reduce the influence of its state-owned enterprises and focus on the quality of economic growth as it maps out the next phase of China’s development, the health of private businesses will likely become an increasingly important barometer. And while official PMI has been a source of relative optimism, China’s industrial giants have faced their share of hardship as well. Profits for the country’s state-owned enterprises have fallen nearly 10 percent from a year earlier, according to The China Daily. The good news, writes HSBC’s own analyst Qu Hongbin, is that continued weakness suggests that Beijing will pursue more concrete policy action to ensure a soft landing for its economy. On the surface, recent public statements indicate that the government is prepared to do so. Premier Wen Jiabao  ...
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