China is
overheating on the backs of massive property speculation, needless
infrastructure building, and rampant credit growth. In spite of that inflation, HSBC's China flash PMI points to contraction.
HSBC's China "flash"
Purchasing Managers' Index fell to a 28-month low of 48.9 in July, down from
50.1 in June, marking the first time the guage has
indicated a contraction since July 2010. The preliminary version of the PMI
output index also showed further deterioration, dropping to 47.2 in July from
49.8 in June. HSBC economists said the PMI data seemed to indicate an
industrial-production rebound seen in last month's data was temporary. "We
expect industrial growth to decelerate in the coming months as tightening
measures continue to filter through," said HSBC economist Hongbin Qu. HSBC's final version of the PMI is due out at
the beginning of next month.
China Overheating
MarketWatch reports China should tighten further, IMF says
The International Monetary Fund on
Wednesday said China should continue to withdraw stimulus in part to combat
risks of higher-than-expected inflation.
In its annual review of China’s economy, the IMF directors “saw
room for further tightening of monetary conditions” and suggested
“greater reliance on interest rates and nominal exchange rate appreciation.”
In addition to possible inflation risks from food supply shocks, the IMF
staff said China also faced the risk of a possible property bubble and a
decline in credit quality in the lending undertaken to protect the economy
from the financial crisis.
The IMF board repeated its recommendation that China should allow its
currency, the yuan, to strengthen further.
China’s representative at the IMF, Jinxiong
He, had the rare opportunity to rebut the report. He disagreed sharply with
the suggestion that the yuan was below
fundamentals, saying the staff analysis is based on a flawed benchmark.
The Chinese official also complained that the IMF did not mention that the
U.S. Federal Reserve’s quantitative easing had fueled inflationary
pressures and constrained options regarding the policy mix.
The IMF
seriously understates the the Chinese property
bubble, credit bubble, and risk of a Chinese economic implosion.
Mish
GlobalEconomicAnalysis.blogspot.com
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Mish's Global Economic Trend Analysis
Thoughts on the great
inflation/deflation/stagflation debate as well as discussions on gold,
silver, currencies, interest rates, and policy decisions that affect the
global markets.
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