At the beginning of the year there was once more a significant rise in the prices of raw materials, especially oil, gold and copper. The danger of Greek default has been averted, which brings hope of market stabilization. Qu Hongbin, HSBC China chief economist, says 'With no meaningful rebound in domestic demand in sight, and worsening external demand, there are more risks for China's growth.' Taking into account the PMI index rate, the state of China's industry makes it possible to believe that the economic slowdown can be prevented. Reduction in the assets reserve ratio and a more liberal Wall Street's monetary policy will favor financial and raw materials markets. The PMI index rate serves as an early warning in the production sector. It is calculated by analyzing five sub-indicators, such as new orders, production, employment rates, date of deliveries, and production materials reserves. A figure above 50 indicates that there is an expansion, when it falls below that level, there is an economic slowdown. According to Markit/HSBC, the PMI index rate for China (with 48,8 points on 1 February 2012) shows that China's economy is slowing down. The overall PMI rate for industry is falling down as a result of a significant decrease in the construction sector. Changes on the housing market indicate that the speculative demand is shrinking and cooling down. Also the business activity shows a downward trend. The decline continued a trend that China's trade figures had shown in January, which then decreased at their fastest rate since 2009. That month, total imports and exports declined by 7.8 percent year-on-year to $272.6 billion. According to a statement on the National Bureau of Statistics' website on Wednesday, China's industrial output grew by 10.7 percent in 2011, down from 12.1 percent in 2010. The People's Bank of China cut banks' reserve requirement ratio last Saturday by 50 basis points to 20.5 percent, which was expected to free up about 400 billion Yuan that can be used in lending. According to a research note by the financial services firm JP Morgan 'We are expecting another reserve cut this month, and two to three more this year, as part of China's moderate, targeted and controllable policy easing.' As usual - due to the New Year Season - the transport and consumption sectors are in good shape. The Ancient Chinese believed that on the second day of the second Chinese month a dragon emerges from the earth and jumps towards the sky, bringing rain, long-awaited by the farmers. Will the mythical creature, with 2012 being the Year of the Dragon, bring luck to the Chinese economy? Time (and the next PMI index rate publication) will show.

  back