Manufacturing in China increase its growth rate in August, which fell to its lowest level since early 2009 in July. Better than expected data on Chinese industries have shown that Asian country is able to maintain its growth momentum despite the economic climate deteriorated globally in recent months. Index of business activity in the factory sector rose to 51.7 points in August compared to 51.2 points in July. Its value lies within the area of growth over 50 points for the 18th straight month, topped market expectations, as reported by China Federation of Logistics and purchases (CFLP). They were in line with those of HSBC Bank Institute and market Markit Economics, which in turn is calculated index of business activity in the manufacturing sector of China. Its value for August rose to 51.9 points in July after having fallen to 49.4 points. The growth of manufacturing sector in China in August soothe concerns that the gross domestic product will significantly reduce its growth rate in the second half of the year. Oil prices rose, while the regional MSCI Asia Pacific Index advanced by 0.5 per cent in the first September session in Asia. China’s GDP grew by 10.3% yoy in the second quarter, reducing its growth rate to 11.9 percent growth recorded in the first quarter.
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Another evidence of slower growth in the global economy in the second half of this year came from China after it became clear today that the manufacturing sector of the country has shrunk for the first time in 17 months in July. Data for China’s manufacturing sector are important for global financial markets because the country’s third largest economy in the world and one of the biggest consumers of raw materials. Index of HSBC, which monitors business activity in the factory sector, China dropped to 49.4 points in July from 50.4 points the month before. Its value thus fell into the pessimistic zone below 50 points for the first time since April 2009, says CNN. Separate data on China Federation of Logistics and purchases (CFLP) on the weekend showed that the official index of the Chinese government for business activity in the manufacturing sector fell to 51.2 points in July from 52.1 points the month before. That is its lowest level, also from April 2009 onwards. Most clearly for the contraction in the sector said the drop in the volume of new orders. Contraction in production in China may worsen the economic mindset of investors, especially since the U.S. government announced late last week that the U.S. economy has slowed more than expected to 2.4 percent pace its growth in the second quarter.
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The heads of the International Monetary Fund (IMF) are split on whether the Chinese yuan is undervalued. Thus, the organization transferred the differences between U.S. and China on monetary policy in the Asian country. Some board members say the organization that claims that China’s exchange rate is undervalued, based on “vague forecasts for the current account surplus country, it is clear from the statement distributed after the last meeting of the organization. The Chinese yuan rose is less than the rate against the dollar for the last month, although U.S. push for faster appreciation of yuan. On 19 June the authorities in China announced that they no longer practical policy fixed exchange rate of yuan to the dollar and that will be pursued more flexibility. “Directors welcomed the decision to return to the regime of managed floating exchange rate,” it said in the opinion of the meeting. “This decision will increase the flexibility of the central bank to tighten monetary policy,” said the heads of the IMF. Today, the Chinese yuan was at 6.7792 yuan to the dollar after a period of two years – from July 2008 to June 2010 was held at 6.83 yuan to the dollar. “Many directors maintain that over time a strong yuan will help the transition from investment to exports and private consumption as the main driver of growth, it is clear from the opinion.
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The Labour Commissioner Karel De Guh said that China should improve investment opportunities for foreign companies in the country, said “serious questions” that puts European business practices in connection with the Chinese procurement market, says the Wall Street Journal. During his visit to the Shanghai World Exposition (World Expo) Guh stressed that China should ensure transparency and openness of its market procurement and noted that all the rules that distort competition, hampering economic growth. In response to remarks by European Commissioner, Chinese Vice Minister of Commerce Gao Huchan said that the policy of the Chinese government is strongly opposed to protectionism. Guh said that Chinese investment in Europe remain relatively low until the GAO sees possibilities for cooperation between Europe and China in high technology and green energy. Between 2004 and 2008, European imports from China grew by an average of 16.5 percent per year, although because of the global financial crisis experienced a drop of 13% in 2009.
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China must make a choice on how to combat the threat of inflation, one option is to raise interest rates in the country and another – to resort to increasing the value of the yuan. Such was the view of analysts at the Asian Development Bank. Like most countries of Asia and China significantly increased public expenditure and resort to a decrease in the rate last year. The purpose of this was to promote economic growth in the global recession, writes AR. Now, authorities in the region discuss options for the removal of economic incentives and increased interest rates to prevent the risk of overheating. ‘Over the next 12-18 months should interest rates rise significantly, depending on how monetary policy is conducted, said in a report, analysts at the bank. The document dealt with Southeast Asia and Hong Kong, Taiwan, China and South Korea. China should take quick action on economic policy back to its normal state, to avoid inflation or “hard landing”, considered by the bank. The persistence of price growth could be done by raising the exchange rate and the country must decide on which of the two ways to act, the report said. For South Korea, Malaysia, Singapore, Thailand and Taiwan is recommended a further increase in interest rates. Hong Kong, Indonesia, Philippines and Vietnam would also have to start cutting costs and tightening monetary policy, recommended by the bank.
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The week ended with the fall of most leading stock indexes in Asia as a reason for that and today was the news from China. Forecast of Goldman Sachs showed that the country’s economic growth will fall below 8 percent on a quarterly basis in the second half of the year, which was disappointing for markets. As a result, Shanghai Composite fell 2.1 per cent, but at the end of the session managed to hit the green with a 0.4 per cent to 2383 points. Despite the growth, however, the index has lost more than 7 percent last week. Shortly before the end of the regional trade index MSCI Asia Pacific is moving at a decline of 0.4 percent to 111.49 points. This means that it fell by 3.6 per cent for the week and its value reached its lowest level in three weeks. At the opposite pole today was the major index in Taiwan Taiex, which rose 1.06 percent to 7 330.74 points. This is due to the trade agreement signed with China earlier in the week. Expected by him to achieve acceleration of the integration process in the region of Asia. Today in Tokyo the Nikkei 225 rose 0.13 percent to 9203, 71 pp. However, the index decreased by more than 5 percent last week.
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The crude oil prices fall account for a third day because of weak data on consumer confidence in the U.S. and alarming signs of economic growth in China. The U.S. consumer confidence in June dropped heavily to the level of 52.9 points in June, after a month earlier was 62.7 points. This prompted a sharp drop in U.S. stock exchange yesterday, as predictions were for much more limited decrease in the index. On the New York Stock Exchange yesterday, oil contracts with delivery in August fell by 3 percent to 75.94 dollars a barrel. This is the largest decline in raw material from June 4 onwards. The night continued retreat of the quotes this morning and they were 0.4 percent lower at 75.66 dollars a barrel. Thus, the raw material is directed to the first quarterly drop in prices from late 2008 onwards. From late March till now, oil has dropped by 9.4 per cent. Yesterday in London, Brent crude oil from the supply in August fell 2.8 percent to 75.44 dollars a barrel.
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Year after China called on U.S. fiscal policy “irresponsible” Asian country shows signs of increasing confidence in the policies of U.S. President Barack Obama. This is evident from the data on the size of China’s position in U.S. government bonds. In March and April this year grew by 2.6 percent to 900.2 billion after last year between November and February that she was reduced to 6.5 per cent. So long series of negative has been reported a decade, official data showed. During the two months considered China increased its position in U.S. government bonds with 22.7 billion dollars. This is only part of the increase in foreign assets of the Asian country, which amounted to 205.2 billion dollars. Purchases in recent months have focused on the acquisition of long-term U.S. debt. Unlike now, in 2008 China increased mainly purchases of short-term bonds. For the 12 months to the end of April this year the increase of the position in U.S. bonds with a maturity of two years or more with 46 percent, data show. With the acquisition of long-term bonds China helps the U.S. to keep its funding costs at a record low. Analysts also support companies and consumers in the U.S. and accelerates the process of economic recovery.
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The soft drinks manufacturer PepsiCo plans to invest 2.5 billion dollars in China over the next three years. The money will be invested in new factories in the country in research and promotional campaigns, reported AFP. These funds are added to the already announced $ 1 billion investment company, which announced in 2008 and are planned to be invested by the end of this year. Speaking of the leadership of the group shows that Pepsi’s investment program reflects confidence in this important, growing market. Manufacturer’s plans include the construction of between 10 and 12 new plants in China, which currently has 27 factories of Pepsi. There are plans to expand the portfolio of products tailored for the local market. Last year the competitive Coca-Cola also announced big plans in China, the company plans to invest $ 2 billion there for three years. The investment is quite big for the company, which recovered from hard drop in sales for the months of financial crisis. This investment should recover the placement in the largest country of the world and is basically required by the high consumption of the soft drinks in Asia.
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Government securities (GS) of developing Asian economies are protected from the Greek crisis and will perform well this year thanks to low levels of debt in these countries and because of the rapid growth of their economies. It predicts the international credit rating agency Standard & Poor’s, quoted by Bloomberg. Its economists point out that while government bonds of developed countries are less reliable because they are exposed to a deepening crisis of sovereign debt of Greece. William Hess, director of the division of Standard & Poor’s sovereign ratings for Asia, believes that the interest of investors to the region will increase, but the direct risk of transferring the debt crisis of Europe and Asia still remains limited. Asia surpassed other regions in contributing to the recovery of global economy this year, which happens for the first time in history, according to analysts at the International Monetary Fund (IMF). Countries like China, India and South Korea have caused the region to gain a record amount of foreign exchange reserves. This is the response from the Asian crisis in 1997-98, which showed that their central banks can not ensure the stability of local currencies and financial system. Now, the dynamic rates of economic growth in Asian countries, coupled with their low levels of debt, make them an attractive investment alternative. These factors will promote the strengthening of capital flows and the reduction in risk premiums in Asia, considered from Standard & Poor’s.
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