Is Slowing Chinese Economic Growth Gaining Momentum?
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China’s manufacturing shrank in March, adding to the mounting evidence that China’s economy may be stalling and cooling off much more quickly than previously predicted.
According to a report by ABC News, China’s manufacturing activity did not just slow, but it actually shrank in March. The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index (PMI) issued a report noting an 11-month low of 49.2 in Chinese factory activity for March. Anything below a mark of 50 indicates contraction, while 50 and above indicates sector growth.
China’s manufacturing shrank in March, adding to the mounting evidence that China’s economy may be stalling and cooling off much more quickly than previously predicted.
According to a report by ABC News, China’s manufacturing activity did not just slow, but it actually shrank in March. The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index (PMI) issued a report noting an 11-month low of 49.2 in Chinese factory activity for March. Anything below a mark of 50 indicates contraction, while 50 and above indicates sector growth.
Analysts believe the decline is due to a reduction in orders from outside of China. As fewer orders came in, output declined, workers let go, and employment rates and output prices sank. The numbers were not even worse thanks to a decline in manufacturing costs resulting from falling oil prices.
The contraction in manufacturing has led to a drop in Chinese stock prices. The Shanghai composite stock index dropped 2%
Bubble and Recession
Unfortunately, this contraction is not entirely new. Over the last few weeks, the HSBC Flash China PMI has reported a significant deterioration in a number of sectors of the Chinese economy. Among them: retail sales, fixed asset investments, home prices, and industrial production. This led the Chinese government itself to revise its own forecast for GDP for the year, dropping it to “around” 7% for the year.
Many have feared China’s economy may be teetering on the edge of a recession given its own construction bubble. Construction slowed or halted on a number of major projects, a probable prelude to an economic recession, as American investors are all too aware. Excessive construction tends to foreshadow recessions, as has been shown in the United States, most recently in 2008.
Greater Damage
However, with China’s construction boom several times larger than America’s, some fear the fall could be equally disproportionate. The declining manufacturing data may be yet another indicator of the impending crash, or may simply signal fears of outsiders that such a downturn is imminent. Foreign buyers may be less inclined to pursue having their products manufactured by Chinese factories if they fear those same factories could shutter in a recession.
Whether the contraction will continue in April, or if it is truly the precursor to a much larger, systemic downturn, remains. What is certain is that this decline has investors worried and that, in turn could create the self-fulfilling prophecy of a Chinese recession.
