A key measure of Chinese manufacturing activity edged into positive territory last week, as the official Purchasing Managers Index (PMI) rose from a September level of 49.8 to 50.2 for October. The expansionary figure represents a three-month high, and one analyst told BBC News<\/a> that “the return of the PMI to above 50 suggests economic momentum has indeed picked up”. Even HSBC’s unofficial PMI reading, which draws its data from private small and medium-sized enterprises as opposed to the official SOE-focused survey, hit an eight-month high<\/a> despite remaining in contractionary territory. As The Wall Street Journal notes, both gauges now tightly straddle the 50 mark<\/a> that delineates an expansion from a contraction.<\/p>\n
But has China’s factory sector really rebounded? Not so fast, according to The Financial Times’ Kate MacKenzie, who breaks down the individual components of the official PMI and sees a mixed underlying story<\/a>. Input prices have jumped, and both new export orders and employment continue to contract (albeit both more slowly than in September). MacKenzie writes that such details “stand out to us as taking the shine off the overall positive figure”.\u00a0The Wall Street Journal also scanned the analyst community and\u00a0found a mixed reaction<\/a> to the manufacturing data, though some wrote that the readings validated the government’s current approach to policy easing.<\/p>\n
As observers continue to debate the direction of the Chinese economy after September and third quarter data also\u00a0generated cautious optimism<\/a>, Peking University’s Michael Pettis remains at the center of the debate. The self-proclaimed “China skeptic<\/a>” has long-highlighted the constraints of China’s growth engine and stressed the likelihood of \u00a0a sharp and necessary slowdown as the economy shifts away from an investment and export-led model, and this past week he took on two “China bulls” in separate conversations on the subject.<\/p>\n
NPR’s Rachel Martin interviewed Pettis and CLSA’s Andrew Rothman<\/strong><\/a>, who took the view that China’s rebalancing process has already commenced thanks to “significant steps” taken by the government:<\/p>\n
MARTIN: Michael, I assume you’re not as optimistic as Andy.<\/p>\n
With growth already retreating from the double-levels enjoyed before the financial crisis, The Wall Street Journal also asked Pettis and expert Nick Lardy if 7%-8% economic expansion is “the new normal” or if the slowdown will continue<\/strong><\/a>. Lardy argued that consumption has already begun to contribute more prominently to GDP, and wrote that he expects incoming leaders Xi Jinping and Li Keqiang to accelerate the pace of reform and stave off any further deterioration in China’s economic performance. Pettis, however, challenged the assumption that household consumption can continue to grow at such a strong clip and instead suggested that overall economic growth “will slow substantially in the next few years”. From Pettis’ response to Lardy:<\/p>\n
Big Bad Loans<\/strong><\/p>\n
Why? There are plenty of reasons – slumping global demand and rising labor costs, to name a couple. But The Diplomat’s James Parker also writes that China is “addicted to credit”<\/a><\/strong>, and notices the sharp increase in accounts receivable (money owed but not yet paid to a company by its customers) on the balance sheets of Chinese companies:<\/p>\n
The Wall Street Journal also reports that China’s state-run banks, despite enjoying double-digit profit growth in the third quarter, are bracing for an uptick in non-performing loans<\/a>. Even The China Daily admits that bad loans are weighing on China’s biggest lenders<\/a>, and\u00a0Forbes contributor Gordon Chang goes so far as to call the Big Four banks “China’s Enrons”<\/a>:<\/strong><\/p>\n
\n
- The China Daily reports that analysts expect the Renminbi trading band to be broadened this year<\/a>.<\/li>\n
- Real estate developers have turned their eyes back towards Beijing and Shanghai<\/a>, according to Bloomberg, as opportunities wane in 2nd-Tier cities.<\/li>\n
- Crude steel output slowed sharply<\/a> during the first nine months of 2012, according to data provided by China’s National Development and Reform Commission (NDRC)<\/li>\n
- Search engine giant Baidu reported a 60% rise in third quarter profit<\/a> amid growing advertising revenue.<\/li>\n
- China announced new measures aimed at supporting its ailing solar industry<\/a>, which has suffered U.S. duties on exports over dumping claims.<\/li>\n
- As sales growth slumps for Nike, Lee jeans and others, one private equity partner tells The Wall Street Journal that “the hypergrowth era for the apparel industry in China is over, period<\/a>“.<\/li>\n
- Toyota misfired with Chinese buyers<\/a>, and the problem runs far deeper than the recent anti-Japan protests, writes Reuters’ Norihiko Shirouzu.<\/li>\n
- Bloomberg reports that China has suspended operations at some coal mines<\/a> to avoid any safety disasters in the run-up to this week’s 18th Party Congress.<\/li>\n
- Tobacco giant Philip Morris is trying to raise its profile in China<\/a>.<\/li>\n
- Reuters reports that a Chinese sovereign wealth fund has taken a 10 percent stake<\/a> in the holding company which controls Britain’s Heathrow Airport.<\/li>\n<\/ul>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
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