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HSBC Reports Slowdown in Chinese Manufacturing, Asian Markets Fall

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By: Martin Blanc
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HSBC Holdings Ltd. (HSBC) released its December ‘flash’ number for China’s Purchasing Managers’ Index (PMI) today, recorded at 50.5, down from 50.8 reported in November. Stocks and indices in some key Asian markets fell on the news, while crude oil prices largely remained flat.

The latest PMI number, which is now at a three-month low, essentially indicates a slight slowdown in the Chinese industrial sector. HSBC releases its PMI number every month, which reflects sentiment in the manufacturing and industrial sector based on a comprehensive survey of purchasing managers from over 700 companies in the country. A number above 50 shows that manufacturing has picked up pace, while anything below 50 indicates a slowdown. The flash PMI is a preliminary number and is calculated as part of a survey using numbers from December 5 to December 12. The full PMI number for December will be released on January 2, 2014. The following is a historical 5-year chart showing China’s official PMI numbers.

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Despite the negative news, China’s GDP growth is expected to come in at 7.8% for the last quarter of 2013. Analysts covering the Chinese economy believe growth in the country’s GDP is expected to stabilize at 7.5% for 2013. HSBC analyst, Hongbin Qu said: “Although the PMI number reported by HSBC shows a slight drop in growth, the number still indicates that recovery in the country’s manufacturing sector has continued its upward trend.”

Other analysts are not so optimistic, and believe that the three-month low for the China PMI number is a sign that the country’s industrial sector is weakening and the sluggish movement in manufacturing data will continue into 2014. Zhiwei Zhang at Noumra (NMR) believes the latest report indicates falling momentum in China’s recovery because growth has now slowed down to multi-year lows.

Asian markets fell on Monday, when the initial PMI figure was released, with the Shanghai Composite Index (SHCOMP) down 1.6% at the close of trading and Hong Kong’s benchmark Hang Seng Index (HSI) down 0.5% by mid-day. A number of Asian financials and mining stocks also fell on the negative news, with HSBC down 1% and Aluminum Corporation of China Ltd. witnessing a 2% decline on the Shanghai Stock Exchange. Japan’s Nikkei 225 Index (NKY) also shed 1.6% on Monday to close at 15,152 points.

The Australian dollar fell 0.4% against the US dollar following the release of the PMI. The Australian currency is highly susceptible to news about China’s manufacturing sector due to its dependence on exports to China.

Crude oil prices in Asia, on the other hand, largely remained flat. Light sweet crude futures for delivery in February shed only 0.01% on the New York Mercantile Exchange (NYMEX).

China’s new leadership has shown increased focus towards structural changes rather than just focusing on speedy economic growth, which is primarily driven by exports. The new ruling party has also stated its desire to reduce governmental control on industrial companies and is moving towards granting a greater level of autonomy to China’s private sector.

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