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China Economic Slowdown Spreading To Services Sector

Jade

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China's services sector cooled in November to its weakest growth in three months, an HSBC purchasing managers' index showed on Monday, the latest data portraying an economy slowing quickly and in need of policy support.

The index fell to 52.5, a sharp decline given that October's reading was 54.1 -- the highest in four months -- though the index remains above the 50 level that separates expansion from contraction in the sector.

Expectations for new business dropped to their lowest level in three months too, but remained firmly above 50.

"With price pressures easing further, Beijing can and should use policies that are targeted on small businesses and service sectors to keep GDP growth at above 8 percent for the coming year," Qu Hongbin, HSBC's chief China economist, said in a statement.

China's official PMI for its non-manufacturing sector, released on Saturday, fell to 49.7 in November from 57.7 in October, the China Federation of Logistics and Purchasing said.

The readings mirror similar weakness in the country's giant manufacturing sector and underline expectations that Beijing will ease monetary policy further to cushion the blows of the global economy.

PMI data in the past week has shown that both domestic and export orders are weakening, helping explain the central bank's decision last week to cut bank reserve requirements for the first time in three years.

The move to free up cash was a signal that the central bank was shifting toward loosening monetary policy to support the economy, which is widely expected to grow next year at less than 9 percent for the first time in a decade, economists said.

Some economists are reluctant to read too much significance into the services indexes given their volatility, lack of seasonal adjustments, simple calculation methodology and their consequently weaker predictive power.

For instance the reading of 49.7 in China's official services PMI for November was an 8 point plunge from October, but smaller than the 9.5 point average since 2007, the starting point for this series, said Tim Condon, head of Asian economic research at ING in Singapore.

Past performance suggests that half that decline will be recovered in December, leaving the index in the mid-50s, though that is well below the near-60 level it has been at for most of the last 18 months and a clear sign of a slowing economy.

"The weakness in the manufacturing sector is spreading to the non-manufacturing economy. We think the policy fine-tuning also will spread," ING's Condon said.

Manufacturing dominates the Chinese economy and made up some 58 percent of activity in 2010. Services accounted for around 38 percent in 2010, losing some share in recent years to manufacturing which benefited from government stimulus programs to help the economy through the global financial crisis.

Factories elsewhere are also feeling the force of the global economic slowdown. A global PMI released last Thursday by JPMorgan, with research and supply management organizations, fell to 49.6, suggesting a contraction in global manufacturing.

Chinese officials have expressed growing alarm at the slide in the global economy as Europe struggles to produce a decisive solution to its debt crisis. China's economic growth has eased for three straight quarters to 9.1 percent in the July-September period.

Vice Finance Minister Zhu Guangyao said last week that the world economy faced a worse crisis now than during 2008 and that stimulating growth should be a priority.

Vice Premier Wang Qishan in November said a chronic global recession was certain.

Most analysts say the central bank has room for further cuts in banks' reserve requirements to release cash into the economy given than inflation is less of a concern. Consumer inflation fell back in October to 5.5 percent from a three-year high in July of 6.5 percent.

Before last week's 50 basis point cut in the ratio from a record 21.5 percent for big banks to 21 percent, a Reuters survey had shown analysts expected 200 basis points of cuts in 2012.

Some analysts have now increased their expectations. Kevin Lai, a senior economist at Daiwa Capital Markets in Hong Kong, said he expects 200 basis points of cuts in addition to last week's reduction.

Few analysts expect the central bank to start cutting interest rates anytime soon though. Rates are already below inflation levels, so a cut could encourage savers to pull money out of the banking system in search of higher returns elsewhere and so crimp bank lending.
----------------------------------

For the first time in a decade China's growth rate will come below 9%.
 
China Stocks Fall on Economic Concern, Capping 4th Weekly Slump

China’s stocks (SHCOMP) fell, capping a fourth week of losses for the benchmark index, as sliding property prices and the slump in manufacturing added to concern the economic slowdown is deepening.

China Shenhua Energy Co. (601088) and Jiangxi Copper Co. (600362) led losses for energy and material producers, the biggest decliners among 10 industry groups in the CSI 300 Index after utilities. China Southern Airlines Co. the largest domestic carrier (600029), plunged 3.2 percent after the China Securities Journal said the government raised wholesale jet fuel prices.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 26.20 points, or 1.1 percent, to 2,360.66 at the close. It fell 0.8 percent this week. The CSI 300 lost 1 percent to 2,557.31 today. The Bloomberg China-US 55 Index was little changed at 101.09 at the close in New York.

“Investors remain concerned about the weak economy after yesterday’s one-day rally,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “There’s nothing spectacular that will really push stocks up and there’s the PMI data that wasn’t reflected yesterday because everyone was focusing on the reserve ratio cut.”

The Shanghai Composite rose 2.3 percent yesterday, as the first cut in lenders’ reserve requirements since 2008 overshadowed a report showing the Purchasing Managers’ Index contracted for the first time in two years.

The stocks measure fell 0.8 percent this week, adding to this year’s 16 percent slump, after the central bank raised interest rates three times and lifted the reserve-requirement ratio six times to curb inflation that reached a three-year high of 6.5 percent in July. The index is valued at 11.2 times estimated earnings, compared with a four-year average of 17.3 times, according to weekly data compiled by Bloomberg.

Commodity Stocks

Gauges (SHSZ300) of energy and material stocks in the CSI 300 lost more at least 1.8 percent. Jiangxi Copper, the biggest copper producer, decreased 2.9 percent to 25.59 yuan, while Yanzhou Coal Mining Co. retreated 2.5 percent to 25.58 yuan. China Shenhua Energy, the largest coal producer, fell 1.7 percent to 25.61 yuan.

China’s challenge in loosening monetary policy is to sustain the expansion of the world’s second-largest economy without spurring price gains, fueling bad loans or reigniting a real estate boom that has started to deflate. The Purchasing Managers’ Index fell to 49.0 in November from 50.4 in October, the China Federation of Logistics and Purchasing said yesterday. A level below 50 shows contraction.

China Southern Airlines dropped 3.2 percent to 5.5 yuan. Rival China Eastern Airlines Corp. retreated 2.3 percent to 4.25 yuan. China raised wholesale jet fuel prices by 376 yuan per ton to 7,653 yuan per ton in December, the China Securities Journal reported, without saying where it got the information.

Property Slump

China’s home prices fell for a third month in November as developers started to cut prices to boost sales amid the government’s housing curbs, according to SouFun Holdings Ltd. Home prices dropped 0.28 percent last month from October, when they retreated 0.23 percent, SouFun, the nation’s biggest real estate website owner, said yesterday.
Shanghai home transactions by area slumped 53 percent last month from a year earlier, Shanghai Securities News reported today, citing data from Shanghai Deovolente Realty.

Premier Wen Jiabao has said the government won’t relax property curbs after raising down-payment and mortgage requirements and imposing home purchase restrictions in about 40 cities this year to avert a bubble.
Rate Outlook

“China does have scope to cushion the downturn through fiscal and selective monetary easing,” said Masha Gordon, the head of emerging markets equity portfolio management at Pacific Investment Management Co., which oversees about $1.35 trillion worldwide. “The key, as always, is whether policy makers manage to stay ahead of the market. This may prove to challenging.”

Eleven economists of 19 in a Bloomberg News survey conducted yesterday say interest rates will stay unchanged through next year and another three predict increases. Goldman Sachs Group Inc. and HSBC Holdings Plc are among five that see cuts.

China, the world’s second-largest economy, expanded 9.1 percent in the third quarter from a year ago, the least in two years. The growth will slow to 8.5 percent next year, the Organization for Economic Cooperation and Development said in a Nov. 29 report, down from its May forecast of 9.2 percent.

Citigroup Inc. forecast Chinese stocks to be “range- bound” for most of 2012, with A shares to trade from 2,400 to 2,800 and reaching as high as 3,200. H shares may trade between 10,700 and 12,000 next year and reach a high of 14,000, according to a report yesterday by Minggao Shen, head of Chinese research at Citigroup.

B Shares

The Shanghai SE B Share Index, whose shares are traded in U.S. dollars, dropped 3.5 percent today. The measure slid 8.4 percent this week, the most in almost six months on fund outflows, concerns about the introduction of the Shanghai International Board and speculation yuan appreciation will slow.

Emerging-market equity funds had withdrawals of $500 million, Citigroup Inc. analyst Markus Rosgen wrote in a report dated today. China was the “hardest hit” among Asian countries with outflows of $300 million, the report said.

Strategists predict the yuan will be the worst performer of currencies in the biggest emerging markets over the next four months as sluggish exports curb appreciation. China’s currency will advance 1.6 percent to 6.27 per dollar by the end of March, based on the median of analysts’ estimates compiled by Bloomberg as of Nov. 30.
 
india would love to have the kind of 8-9% growth China has.... instead india has double digit inflation
Ya it wud have been nice. Why not we trade some digits. Pls send some digits with ur military chief coming to india. We will send some digits back along with some mathuras pedha.
 

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