China PMI Collapses

China has clearly begun to move in the direction of a recession, even if such an event would not be defined as it is on Western terms.

China’s PMI as released by the China Federation of Logistics and Purchasing was 49.2 in August, off from 50.2 in July. The People’s Republic central government has forecast GDP growth to be above 8% this year. Between numbers which are often viewed as too optimistic by experts and the recession which has gripped much of the world for a second time,  China’s expansion could be far, far below that as this year and next wear on.

According to Bloomberg:

The August PMI reading was lower than the estimates of 24 of the 25 economists in a Bloomberg News survey that had a median forecast of 50.0, the dividing line between expansion and contraction. The index is based on responses from purchasing managers at 820 companies in 31 industries.

A gauge of export orders was unchanged from the previous month at 46.6, marking the third straight contraction, federation data showed. The decline in the new orders index deepened to 48.7 and a measure of output fell to 50.9.

The contraction increases two other negative trends. The first is that China’s middle class will feel financially pressed as the country adds fewer jobs, and the chanced for high wages disappear. China’s own consumers will undoubtedly buy goods and services at less aggressive rates. This in turn further undermines growth as a vicious cycle

As the world’s second largest economy by GDP, China’s slowing means its consumers and businesses import less from the EU, Japan, U.K., and U.S.–forcing down economic activity in those regions.

Perhaps the only good things that can be said about the China numbers is that the trend will keep inflation down within the nation, along the demand for oil which is already near unsustainable price levels as it pushes up the cost of widely used items like gasoline around the world..

Douglas A. McIntyre