International | Aug 01 2006
By Rudi Filapek-Vandyck
June saw economists at Hong Kong based equity brokerage, investment banking and private equity group CLSA declare the end of the era of Chinese businesses exporting price deflation into the rest of the world. August saw CLSA confirm the call.
The latest Chinese purchasing managers survey, for July, released today, confirms the overall trading environment for most Chinese businesses remains positive. The CLSA China Purchasing Managers’ Index, designed to gauge the health of the Chinese manufacturing sector, climbed to 53.0 in July, its highest level since May 2005.
New orders, more production, an accelerating output growth, and growing sales to both the domestic markets as well as to the rest of the world: Chinese manufacturers are enjoying the good times.
All this is feeding into businesses hiring more staff, which should please the authorities in Beijing. What won’t please them is that input costs continue to put a squeeze on Chinese margins with Chinese firms raising prices for finished products for the fourth month in a row, CLSA reports. The group expects Chinese authorities to respond through interest rate hikes which increase the chances of a hard landing.
Input costs eased a little from a month earlier, but they remain high, in large part due to the high oil price. CLSA reports there is anecdotal evidence that the passing on of high input costs is made easier because of the buoyant trading conditions.
Approximately 12% of firms reported that they had raised their charges during the month.
According to Eric Fishwick, Deputy Chief Economist at CLSA: "The PMI [Purchasing Managers Index] is signalling another modest acceleration, exactly what the authorities don’t want to see given the already excessive pace of growth. Further austerity measures should be expected with the inevitable result that finally Beijing will tighten too far and push the economy into a slowdown – no central bank ever tightens with the intention of causing recession but this is almost always the result."
