08/03/2015, 00.00
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Chinese economy shrinks again, Beijing uncertain of future

The manufacturing index in July stood at the lowest level since 2013, the industrial downturn continues and Asian markets cede points. The government divided between injecting more liquidity into market, or biting the bullet and waiting for a natural settling. Investors doubtful.

Beijing (AsiaNews) - The Chinese economy’s health shows no signs of improvement. The final PMI manufacturing index for July published by Caixin and Markit Economics has been set at 47.8, the lowest level in two years, down from preliminary readings of 48.2 and 49.4 in June. Any data below 50 indicates contraction.

Although the official figures released by Beijing show a PMI drop to 50 (below expectations of 50.1) and stopping at 50.2 in June. That non-manufacturing related index rose from 53.8 to 53.9. The news impacted negatively not only on China’s markets, but throughout Asia.

At closing, in fact, the continental stock exchanges were all in the red. Analysts point to concerns about the Chinese economy after the latest disappointing data on the manufacturing sector. Shanghai (-2.1%) and Shenzhen (-3.7%) lead the losses, in front of Hong Kong (-1%). Seoul closed down 1.63%, Sydney at 0.35% and Tokyo 0.18%. Fears about China also weighed on oil, whih fell to 1.1% in New York, and on industrial raw materials with the copper at its lowest since July 2009. Futures are also trading negatively on European markets.

It could however be a chain reaction. According to Tim Condon of ING, " We believe the stock market panic in early July chilled economic activity, which is what the manufacturing PMIs picked up". Condon said the factory weakness may be transitory if unprecedented stock market support measures from Beijing in recent weeks succeed in halting panic selling.

Frans van Houten, Chief Executive of the Dutch Philips, is less optimistic: " We had five fabulous years in China, of course, where we grew strong double-digit, and it has been gradually slowing down. Currently, in China we had negative order intake. Going forward, we need to be much more modest on expectations with regard to China growth; that’s just being realistic".

The Beijing government seems unsure what to do. On the one hand it could unlock a massive amount of liquid capital to restart the industrial sector and the construction sector, but risks a surge in inflation and the bursting of the economic bubble. On the other, as announced by Prime Minister Li Keqiang, it could wait until the market stabilizes on its own while supporting small and medium enterprises engaged in new activities related to e-commerce.

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