Manufacturing gauges reflect slowdown in China

Two gauges of China’s manufacturing fell in June, underscoring a sustained slowdown in the economy as policy makers seek to rein in financial speculation and real estate prices.

An official Purchasing Managers’ Index dropped to 50.1 from 50.8, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. A private PMI from HSBC Holdings and Markit Economics was 48.2, the weakest since September. Readings above 50 signal expansion.

Weaker gains in manufacturing and a cash squeeze in the banking system add to the odds that Li Keqiang will become the first premier to miss an annual growth target since the Asian financial crisis in 1998. In the latest signal that policy makers will tolerate slower expansion, President President Xi Jinping said local officials shouldn’t be judged solely on their record in boosting gross domestic product.

“Although new leaders have no intention to achieve a higher GDP growth, the current growth rate is quite close to the floor that new leaders have indicated they would tolerate,” said Lu Ting, head of Greater China economics at Bank of America in Hong Kong. The lower official PMI “could worsen concerns that the liquidity squeeze in June will hit economic growth,” he said.

Expansion probably slowed for a second straight quarter, based on the median estimate in a Bloomberg News analyst survey, after export growth collapsed and Li reined in record credit expansion to contain shadow-banking risks.

Manufacturing surveys are expected for major economies including the U.S., Germany and the euro region. In Korea, a factory gauge from HSBC and Markit slipped to the lowest level since November. In Japan, where the central bank is rolling out unprecedented stimulus, the quarterly Tankan survey showed big manufacturers turned optimistic in June for the first time since September 2011.

In China, domestic debt sales dropped 48 percent in June from the previous month to 190.6 billion yuan ($31 billion), according to data compiled by Bloomberg.

The Shanghai Composite Index dropped 0.4 percent as of 10:02 a.m. local time. It fell 14 percent last month, the most since August 2009, on the cash squeeze.

The official PMI matched the median forecast of 33 analysts in a Bloomberg News survey and compared with estimates ranging from 49.7 to 50.6. The median estimate of 18 analysts was for 48.3 in the HSBC index, the same as a preliminary reading given June 20. That gauge was down from May’s 49.2.

The Communist Party should place more importance on achievements in improving people’s livelihood, social development and environmental quality, the official Xinhua News Agency said in the June 29 report on Xi’s remarks.

CSSC Jiangnan Heavy Industry, a Shanghai-listed maker of steel structures for buildings and ships, said June 24 that it may report a first-half loss on falling orders and prices.

The logistics federation increased the number of companies in its manufacturing survey to 3,000 from 820 starting with January’s reading. The HSBC report is based on responses from purchasing managers at more than 420 businesses, and is weighted more toward smaller private companies. Bloomberg