[GHung]

Contraction? Scary word, eh?

China's factory activity contracted at the fastest pace for six and a half years in September, according to a preliminary survey of the vast sector.

The Caixin/Markit manufacturing purchasing managers' index (PMI) fell to 47 in September, below forecasts of 47.5 and down from 47.3 in August.

A reading below 50 indicates contraction in the sector, while one above shows expansion.

The disappointing data will stoke concerns about slowing growth in China.

The survey comes just a day after the Asian Development Bank lowered its growth forecast for China this year to 6.8% - below the government's target of about 7%.....

http://www.bbc.com/news/business-34332806

Since China's primary growth mechanism is manufacturing, how can factory activity in a rather severe contraction beget 6.8% overall growth? Can we add manufacturing to our list of peaks? Peak stuff?

Hard or soft landing for China?

.

[KingM]

Quite obviously because China is maturing out of a manufacturing-dependent economy like any number of countries have done before t.

[ROCKMAN]

ghung - I read the article and have no idea what they are talking about. For instance: "China's factory activity contracted at the fastest pace for six and a half years in September.". So is that saying its been contracting for almost 7 years but is now contracting faster? Obviously China's economy has been booming on a variety of levels for many years. For a while that was 99% of the headlines about China.. But at the same time "factory activity" has been declining???

Expressing their opinion is OK. But it would be nice if they backed it up with some understandable numbers.

[dolanbaker]

I suspect that a lot of the Chinese "growth" was embodied in the construction boom, some of the contraction has to be down to the slowdown in building.

[Apneaman]

A different version


China manufacturing index falls to financial crisis levels


http://www.abc.net.au/news/2015-09-23/c ... ign=buffer

[Apneaman]

U.S. factory activity stuck at near two-year low in September: Markit


http://www.reuters.com/article/2015/09/ ... K520150923

[kublikhan]

ghung - I read the article and have no idea what they are talking about. For instance: "China's factory activity contracted at the fastest pace for six and a half years in September.". So is that saying its been contracting for almost 7 years but is now contracting faster? Obviously China's economy has been booming on a variety of levels for many years. For a while that was 99% of the headlines about China.. But at the same time "factory activity" has been declining???

Expressing their opinion is OK. But it would be nice if they backed it up with some understandable numbers.

As I understand it, PMI is a survey. Like the consumer confidence index but for manufacturing. China's has been up and down but between 2011 and 2015 it averaged 49.46, indicating generally negative sentiment. I interpret this as meaning manufacturers are feeling pessimistic about the economy. I don't think this means factory output actually declined though. The data below indicates factory output grew over 6% this past year. Perhaps they are pessimistic because the growth rate is declining?

Growth in China's investment and factory output missed forecasts in August, pointing to a further cooling in the world's second-largest economy that will likely prompt the government to roll out more support measures. Growth in China's fixed-asset investment, one of the crucial drivers of the economy, slowed to 10.9 percent in the first eight months of 2015 - the weakest pace in nearly 15 years. Factory output also was weaker than expected, rising 6.1 percent in August from a year earlier.

China's economic growth sputters in August

I suspect that a lot of the Chinese "growth" was embodied in the construction boom, some of the contraction has to be down to the slowdown in building.

I suspected this as well. Turns out construction is just 7% of China's GDP. The service sector passed manufacturing in 2013 to become the largest sector of China's economy.

China’s GDP is broadly contributed by three broader sectors or industries – primary industry (agriculture), secondary industry (construction and manufacturing) and tertiary industry (the service sector). As per the 2013 data, primary industry accounted for 10% of GDP, while secondary industry accounted for 44%, and tertiary industry 46%.

Construction and Industry
Construction and industry (including mining, manufacturing, electricity, water and gas) accounted for 44% of China's GDP in 2013. Industry is the bigger contributor (84% of the secondary industry), while construction accounts for just 7% of overall GDP.

The Service Sector
China's service sector has doubled in size over the last two decades to account for about 46% of GDP. In 2013, it surpassed China's the secondary industries for the first time. Within the service sector are transport, storage and post (5% of GDP), wholesale and retail trades (10%), hotel and catering services (2%), financial services (6%), real estate (6%) and mishmash of services categorized as 'other' (18%). Its growth has gotten the attention of the government, which instituted a five-year plan in 2011 to prioritize the development of service economy along with trade in services (TIS). Still, the services sector’s share of GDP in China is much lower than countries like the U.S. (79%), Japan (73%), Brazil (69%) and India (57%).

The Bottom Line
China's economy has grown by leaps and bounds over the last several decades but still has a ways to go to modernize and reach parity with more-developed countries. Its service economy is now the largest contributor to its GDP, but its size still lags that of other developed nations. China's leadership is focused on changing this, however, with its 12th Five Year Plan, which addresses its dependence on exports. Its construction and industrial sector it still outsized, as befitting a still-developing nation, and its agricultural sector contributes 10% to GDP, way above the 1% of more developed nations.

China's GDP Examined: A Service-Sector Surge

[GoghGoner]

China's slowdown is really killing coal.

European Coal Prices Slump to a Record Low

European coal for 2016 dropped below $50 a metric ton for the first time amid slumping demand from China, the biggest consumer.

Prices have declined 26 percent so far in 2015, heading for a fifth straight year of drops in the benchmark year-ahead contract, according to broker data compiled by Bloomberg. The slump came as lackluster global demand with diminished prospects for growth, including a 35 percent drop in Chinese coal imports from January to July, combined with plenty of available low-cost supply, according to Societe Generale SA.

[Tanada]

China's slowdown is really killing coal.

European Coal Prices Slump to a Record Low

European coal for 2016 dropped below $50 a metric ton for the first time amid slumping demand from China, the biggest consumer.

Prices have declined 26 percent so far in 2015, heading for a fifth straight year of drops in the benchmark year-ahead contract, according to broker data compiled by Bloomberg. The slump came as lackluster global demand with diminished prospects for growth, including a 35 percent drop in Chinese coal imports from January to July, combined with plenty of available low-cost supply, according to Societe Generale SA.

For any big coal users ready for new long term contract negotiations this is great news! Not sure how it works in Europe or Australia but in my area the biggest coal users are electricity producers and they sign contracts with a long term set price between themselves and their suppliers. Some of them are signing new contracts every year as older contracts expire and these low prices are a Godsend for the consumers who ultimately pay for the coal in their electric monthly bill.

[Apneaman]

When This Caterpillar Dies, We Don’t Get a Butterfly [UPDATE]

In order to have an industrial economy you have to build industrial things — roads, ports, buildings, power stations and their grids, airports, houses and shopping centers — and you have to replace them when they wear out. Such building is the activity on which an industrial society rests, the primary source of jobs and all the consequent economic activity that flows from people with jobs. What every one of these building projects needs, in addition to capital and workers, is heavy machinery. That is why the health of Caterpillar, the world’s dominant manufacturer of heavy equipment, and to a lesser extent England”s JCB, are taken as precursors of the world’s financial health.

Call hospice.

It’s bad enough the Caterpillar’s world sales were down 11% year-to-year in August, worse that they have declined by a similar amount every month this year. What is truly awful is that Caterpillar has a string of such sales declines — on average 10% per month — going back almost three years. It’s the longest stretch of sales declines in the history of the company. To those who regard Caterpillar as a bellwether, and it has been reliable in the past, our future is going to be called the Second Great Depression.

The good news is, we’re not alone. In the UK, JCB has just announced it is cutting 400 jobs worldwide in the face of staggering declines in the economies of the countries in which it works. CEO Graeme Macdonald said in a press release, “In the first six months of the year, the market in Russia has dropped by 70%, Brazil by 36% and China by 47%. Parts of Europe are also struggling, with France down by 26%.”

Both of these companies are global operators; both are engaged in creating and maintaining the foundations of the industrial age. Their decline and fall is the decline and fall of the age.

This bull isn’t a dozer, he’s a goner.

[UPDATE: 09/24/15 — Caterpillar today reduced its sales forecast for 2015 by a billion dollars. and announced it will be firing up to 10,000 people in the next few years as part of a desperate cost-cutting program. It is facing, said its CEO, a “convergence of challenging marketplace conditions.”]


http://www.dailyimpact.net/2015/09/23/w ... butterfly/

[EdwinSm]

Imports down again, but exports seem to be holding up better for now. Will the exports start falling in a couple of months (what is the time lag between raw inputs and the final goods being exported? - I don't think it is too long)? But the economy is still growing at a much faster pace than any 'western' country.

China's September imports fell a more-than-expected 17.7% in yuan-denominated terms, while exports fell 1.1% from a year earlier, official figures show.
......
The steep fall in imports compares with a fall of 14.3% in August and continues to reflect lower commodity prices globally.

China recently revised down its 2014 economic growth from 7.4% to 7.3%.

http://www.bbc.com/news/business-34513044

[dolanbaker]

From the same article,

They showed exports fell a less-than-expected 3.7% in September,

Exports are already dropping, but that is probably due to fewer buyers than poor supply.