Thursday, April 24, 2014

China’s Excess Capacity Weighing On Growth (excerpt)

China’s flash M-PMI edged up to 48.3 this month from 48.0 last month. It’s been below 50 for the past three months, suggesting that manufacturing is slowing. That’s not a surprise given recent weak exports data. In addition, the PPI inflation rate on a y/y basis has been negative for the past 26 months through March, indicating excess capacity is also weighing on manufacturing. The property construction market is also showing some signs of deflation recently.

So far, the government’s response hasn’t been sufficient to boost growth. That may be because the government is trying to reduce some of the excesses that led to the building of too many factories and too many ghost cities.

By the way, China’s crude oil demand has been flat at a record high over the past nine months through March. That doesn’t bode well for the country’s economic growth either. It actually suggests that growth may be slowing even faster than suggested by GDP and production indicators.

Today's Morning Briefing: Mixed Global Signals. (1) Top down and bottom up lead to same conclusion. (2) Industrial commodity prices firming. (3) Growth in global crude oil demand slowing, especially among EMs. (4) Europe’s soft data stronger than hard data. (5) Auto recovery just starting in Europe. (6) China paying the price for too much capacity. (7) Another setback for Abenomics in exports. (8) Housing and auto recoveries stalling, according to railcar loadings. (9) Focus on underweight-rated S&P 500 Energy. (More for subscribers.)

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