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This post was edited by abramicus at 2013-8-1 14:15|
The Asian bourses were buoyed by a jump in the Purchasing Manager's Index (PMI) published by the National Bureau of Statistics of China from 50.1 in June to 50.3 in July, signaling an upturn in Chinese manufacturing activity.
However, the same kind of PMI as measured by Markit, that is the international standard of reference, which avoids the risk of domestic padding of figures by managers under pressure to project an air of progress, is telling the world a different story. Although the official number is supposed to be finalized by August 6, 2013, preliminary reports indicate that China's PMI actuall further dropped from 48.2 in June to 47.7 in July 2013. The discrepancy of a full 2.6% between Markit PMI and Official China PMI is itself historic and does not augur well for China's leadership's ability to monitor the economy well, and thus, to take the proper measures to correct what seems, outside the official statistical channels, an accelerating downturn in China's manufacturing sector.
As recently as April 2013, the Markit PMI for April was 50.4 and the Official PMI was 50.6, which showed consistency between the two measures, which adopt practically the same methodology, with a difference of only 0.2%.
Then, in May 2013, the Markit PMI dropped to 49.2, while the Official PMI rose instead to 50.8, with a gap of 1.6%.
In June 2013, the Markit PMI dropped further to 48.2, while the Official PMI held above 50.0 (the dividing line between growth and shrinkage) at 50.1, representing an even greater gap of 1.9%.
The PMI data for July 2013, with Markit PMI dropping even lower to 47.4, while the Official PMI rose to 50.3, represents the greatest gap of 2.6%.
Given a choice between depending on Markit PMI and the Official China PMI, one would have to choose Markit, for the common sense reason that Markit has no incentive to misreport or misrepresent the data, while Chinese purchasing managers reporting to the state have reasons to fear being demoted if they report numbers that higher ups do not wish to acknowledge.
The failure of the Chinese manufacturing sector is the most glaring example and proof that the Yuan is overvalued, and worse of all, overvalued by China's own watchdog central bankers. Mispricing of the Yuan causes all Chinese products to be mispriced in the market as well. Internationally, Chinese products become overpriced in dollars, euros and yens. Domestically, compared to foreign imports, Chinese products become overpriced instead in Yuans. In both cases, due to no fault of the manufacturing sector, or the banks financing their operations, the manufacturers are losing market share due to the fault of the People's Bank of China.
Furthermore, past savings of China in the form of its 3.5 trillion dollars of foreign reserves are being used to prop up the Yuan at the expense of the people, because all dollars being sold by the Chinese central bank come from this reserve, which is being depleted faster than ever before whenever any foreign investor wishes to convert his earnings in China into dollars to repatriate to his home country, as fewer yuans can buy more dollars when the Yuan is overvalued. This allows Japanese companies that invested factories in China and earn profits in Yuans to reap windfall foreign exchange profits without having to produce more, by simply sending their Yuan-denominated profits back to Japan, running into billions every month.
The pernicious effect of the overvaluation of the Yuan by China's central bankers who are deaf and blind to the plight of the private manufacturing sector of China needs to be reversed as soon as possible.
Allowing foreigners to reap exchange rate profits when they repatriate their earnings, allowing SOES/bigwigs to reap exchange rate profits when they invest in foreign countries using yuans that are converted at higher exchange rates for dollars, or when they import foreign goods into China at the expense of Chinese manufacturers, and strangling the manufacturing sector by forcing their prices up in dollars abroad and up in yuans at home, is like helping the fox to steal the golden eggs laid by the faithful goose of the Chinese manufacturing sector, and then strangling the goose so that it will not produce any more golden eggs for the future.
No foreign enemy could have done a better hatchet job on the Chinese economy than this. And, it seems from the padding of the official statistics on China's PMI, there is a long way to go for China's leadership to clean itself of corruption, starting at the very top of its economic and financial structure - at the very highest level.