THE fall in China’s manufacturing data from a five-year high is not a cause for concern; instead, its priorities on pollution control have brought about other benefits.
“The impact is minor as the Chinese economy is expected to remain strong. Actually, most hard commodity prices have significantly benefited from China’s urban blue skies programme,” according to UOBKayhian head of research Vincent Khoo.
“The aim to move towards sustainable growth is actually good, in the long run, for the Chinese economy. Near term purchasing managers index (PMI) numbers will likely moderate but are expected to stay above 50, which indicates an expansionary mode, albeit at a slower pace,” Fortress Capital CEO Thomas Yong opined.
“The environmental crackdown, to last until next March, will continue to disrupt some industrial activities in north-eastern China and may lead to soft readings of the PMI in the months ahead,” according to Socio Economic Research Center executive director Lee Heng Guie.
The manufacturing PMI fell to 51.6 in October against a forecast of 52 in a Bloomberg survey and a five-year high of 52.4 in September.
The PMI for high energy-consuming and high-pollution sectors sank to below 50, as “some regions intensified their efforts to clean up the environment”, said Bloomberg, quoting a statement from the National Bureau of Statistics.
Numbers higher than 50 indicate improving conditions; readings below 50 signal a worsening outlook. (The PMI is based on indicators including new orders, inventory levels, production, supplier deliveries and the employment environment.)
“As indicated in the recent national congress meeting, China is likely to focus on issues such as tackling the high debt level, improving environmental health and targeting high quality growth instead of emphasising growth numbers,’’ said Yong.
“These are valid factors influencing future trends in China’s PMI as policies on addressing pollution and leverage are expected to continue, given its commitment to the Paris accord (on climate) and pledge to address risks to financial stability.
“This underpins our view that China’s economic growth will moderate to 6.6% next year from 6.8% this year,’’ said Maybank Investment Bank group chief economist Suhaimi Illias.
“As the winter season nears, factories in the north may have to reduce production due to pollution restrictions but the drag effect won’t be so serious as manufacturing’s overall contribution to GDP growth has been declining,” Gao Yuwei, a researcher at Bank of China’s Institute of International Finance in Beijing, was quoted as saying by Bloomberg.
“China poses little near-term threat to the global expansion. The latest data are emblematic not only of China’s economy but also of the global economy in 2017. Growth is moderate, but reassuringly broad-based,” Bill Adams, senior international economist at PNC Financial Services Group in Pittsburgh, was quoted as saying.
Starting next year, major central banks will be turning off the taps on easy money that had flooded markets through near zero rates and buying of trillions of bonds.
Is it time to boost cash holdings as no one knows the impact of their action on markets?
“It will worry a lot of investors, because no one’s really prepared for it,” Nader Naeimi, a fund manager at AMP Capital Investors in Sydney, was quoted as saying by Bloomberg.
The belief is that their economies are strong enough to thrive with less stimulus.
“It will hurt... you want it to hurt, otherwise financial conditions will be too loose,” said Nader, who has boosted his cash allocation to 30% in anticipation of pain in bonds and stocks.
Last month, the US Federal Reserve started allowing a portion of bonds on its US$4.5 trillion balance sheet to mature without replacing them.
The European Central Bank is still buying bonds but plans to start tapering off those purchases in January.
China is expected to slow down on credit growth next year with focus on lowering financial risks.
The Bank of Japan will probably keep printing money, but that won’t be enough to offset a global decline in central bank stimulus, which economists expect to start in mid-to-late 2018.
Central bankers are on the move, away from ultra easy policies, but where is the inflation?
In the case of the Bank of England, which raised rates for the first time in a decade, above-target inflation was said to be the result of sharply higher import prices due to the fall in the pound.
What stands out is inflated asset prices, a product of easy money policies put in place to boost markets that had been devastated by the financial crisis.
Columnist Yap Leng Kuen reckons it is tough to be caught between ‘a rock and a hard place’.
Already a subscriber? Log in
Get 20% OFF The Star Digital Access
Cancel anytime. Ad-free. Unlimited access with perks.
