Chinese GDP slump fears heighten as more data disappoints

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Concerns that Chinese economic growth could slow later this year mounted after new data suggested manufacturing activity slumped to a nine-month low in June.

The HSBC Flash China Manufacturing Purchasing Managers’ Index fell to 48.3 points this month, down from the 49.2 recorded in May. A reading of below 50 indicates a contraction in activity.

The indicator, which is based on 85 to 90 per cent of the final PMI’s data, shows decreases in the pace of output, new orders, new export orders and employment of Chinese factories.

HSBC chief China economist Hongbin Qu says: “Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures.

“Beijing prefers to use reforms rather than stimulus to sustain growth. While reforms can boost long-term growth prospects, they will have a limited impact in the short term. As such we expect slightly weaker growth in [the second quarter].”

This month’s Bank of America Merrill Lynch Fund Manager Survey shows global asset allocators regard a so-called hard landing in China as their top tail risk, with 32 per cent of investors citing this and commodity collapse as their biggest fear.

Allocations to emerging markets “collapsed” during June as investors took a net 9 per cent underweight to the region on the back of these fears. Just four months ago, a net 43 per cent of fund managers had an overweight to emerging markets.

Recent research from Capital Economics has also suggested a slowdown in China’s economy. The s China Activity Proxy, which measures growth without using official GDP figures, indicates a broad-based slowdown in areas such as the service sector and construction.

The consultancy adds: “While there are a few signs here and there of conditions improving, the overall story is that growth continues to slow.

“Our 8 per cent GDP growth forecast for this year now looks out of reach. We are lowering it to 7.5 per cent, and reducing our 2014 forecast from 7.5 per cent to 7 per cent.”