This year is the year of snake following the Chinese zodiac. The cyclical year of animal that are you are born into is believed to bring you good luck and fortune, just as it should to the Chinese president-to-be Xi, who is a snake (and also me, haha). Two months in,though, it has been a mixed blessing.
The freshly released Flash China Manufacturing PMI by HSBC complied by Markit showed an edge-down to 50.4 for February, a low in a four-month period, beating the previous glamour of two-year high. The output index is down, to 50.9, also a four-month low. Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said in the release that this fluctuation echos the ongoing gradual recovery, although the underlying strength of the growth remains “intact”, which is represented by the expanding employment and credit growth.
I am not so concerned about the drop in PMI, since it is still above 50, which represents expansion. Some attribute this to the Chinese new year holiday which has just ended, just as the toy maker The Bridge Direct worries about supplies of its toys from China for Easter. HSBC, though, says the numbers are seasonally adjusted.
What I would remain frowned at is the slip of new export order to 49.8, the gloomy situation that has been going on for the past two years. Sadly there isn’t much that China could do about this majorly external factor, especially that Gov.Zhou will remain the Central Bank chief, we are likely to see more movement on the Yuan that might not in result necessarily favor the export sector.
I want to applaud to the recent uptick in the credit growth. Like many emerging markets, most of Chinese investments are funded through bank loans and equities. For a capital market which is only about 280% of GDP, credit growth could almost directly translate into future growth. It would be a whole other story about the sustainability of such growth model, however, we will mostly likely see a recovery in GDP this year.
This could hardly be true for the real estate market, which seems to be sizzling again, and nobody knows when or if there is going to be a pop. The curse of ghost towns seem to creep to a far reaching island of China’s south most Hainan province. Phoenix Island, or as called Dubai of China, is home to an ongoing luxury hotel project and waves of fancy apartment buildings, however has taken a steep price dive. According to an article by AFP, apartments on the island, once with a price tag of 150,000 yuan per square meter, or $2,200 per square feet, are now on the market for only 70,000 yuan. The major reason cited is that many apartment owners are retrieving their investments for safer alternatives in the still unstable economic environment.
Danger would be imminent if this kind of sentiment keeps piling up and eventually tumble this sand castle, which would be skyfall for a lot of Chinese people since many have almost 40% of their money tucked away in real estate, and this industry as a whole represents over a tenth of the Chinese economy.
One quick sidebar on the preliminary political reform success, that is local Chinese officials are dialing down the abuse of tax money on fluff and foam such as conferences to resorts. For example, back to Hainan province, which has always been crowded by groups of politicians on vacation during the Chinese New Year holiday, is experiencing only 3/5 hotel occupancy rate and many of them are offering reasonable pricing which was usually pushed high by the demand. However long this will last, it is still fresh to see Xi is willing to flip this rock.
Trends, good and bad, are starting to form for Mr.Xi, and we will certainly see more coming after he officially assumes the presidential power on Mar.5.