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Keeping An Eye On The China Slowdown

 March 22, 2012 11:23 AM

12 months ago most scoffed at the idea that the Chinese economy was headed for a slowdown, now the debate has shifted to whether it will be a hard or soft landing. There are severe imbalances in the Chinese economy that are now acknowledged by all but the staunchest of bulls. A rebalancing of the Chinese economy will no doubt involve some pain. The track record of centrally planned economies avoiding difficulties is not a good one. China will be no different.

The latest preliminary reading of the HSBC Chinese PMI showed further contraction in the manufacturing sector in March. From marketwatch.com:

China factories slumping amid low demand

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HONG KONG (MarketWatch) — Chinese factory activity is slowing sharply, dragging on employment amid a deepening slowdown in global demand and aggravated by a stall in domestic consumption, according to March survey data showing new orders at a four-month low.

A preliminary reading of HSBC's manufacturing purchasing managers' index for March, released Thursday, printed at 48.1 on a 100-point scale, down from a final reading of 49.6 in February.

The flash PMI is based on 85% to 90% of the total responses during a given month and is an early indicator of business conditions facing Chinese manufacturers.

Bleak tone

In comments accompanying the data, HSBC economist Hongbin Qu sounded a bleak tone, highlighting the impact of the weak demand upon hiring trends.

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"Weakening domestic demand continued to weigh on growth, as indicated by a slowdown in new orders, which came in at a four-month low," said Qu. "More worryingly, employment recorded a new low since March 2009, suggesting slowing manufacturing production was hindering enterprises' hiring desire."

The deterioration in orders matched a surprise slump in industrial-production growth, adding to the darkening outlook, which will play a role in factory managers' decisions.

"External demand remained in contraction territory, but the decline was at a slower pace, implying that there are no improvements in the demand outlook," Qu said.

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