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WIDENING GAP BETWEEN OFFICIAL STATS ON CHINA PMI AND REALITY [Copy link] 中文

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Post time 2013-8-1 14:11:04 |Display all floors
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.


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Post time 2013-8-1 18:03:29 |Display all floors
DON'T TELL DUCKY, GD OR BIG WANG - THEY WILL GET ANNOYED
I'm just here for the money

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Post time 2013-8-4 11:48:54 |Display all floors
This post was edited by abramicus at 2013-8-4 12:00

My views are not unique.  They have been stated by others in reputable magazines and financial institutions.  The Yuan is overvalued, and it is single-handedly causing China's manufacturing to implode, as the capacity built up with the quantitative easing of the past 5 years suddenly hit the brick wall of an overvalued Yuan, which overprices Chinese products abroad in dollars, euros and yens, and at the same time, overprices Chinese products at home in yuans, compared especially to Japanese, and other foreign imports.  

All the while, the Chinese people are paying to have their economy destroyed, when their central bank continues to use THEIR hard earned foreign currency reserves to buy up Yuans from foreigners and any importers, Yuans that it has no need of because it can print it any day for nothing.  Paying hard-earned dollars for nothing is equal to giving away China's dollars savings - and Japan would very likely use it to re-militarize on a massive scale, just as it used Chinese reparations for the First Sino-Japanese War of 1895 of 200 million taels of silver, that was several times its annual GDP then, to militarize for a more massive attack on China in 1937.

The Yuan must be devalued to 7.00 (its approximate fair market value at this time) as soon as possible.  China's manufacturing is being choked to death as we speak.  And its foreign currency reserve is being bled massively every day as well.  Either one will finish off the China Dream in short order.




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Post time 2013-8-4 13:02:40 |Display all floors
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Post time 2013-8-4 14:33:06 |Display all floors
zglobal Post time: 2013-8-4 13:02
You are quite correct that the official figures are manipulated. Choose what is acceptable and mak ...

We are agreed that the problem is the accelerating collapse of China's manufacturing sector.  We differ on the causes of this collapse.  While failure to achieve branding and technological advancement may cause stagnation of exports, its effect is slow, mild, and limited to mostly export products.  The reason for the rapid implosion of the manufacturing sector is that like the straw that breaks the camel's back, or the gradual rise in temperature that finally kills the frog in the pan, is that China's attempt to deflect the damage to its manufacturing sector due to the collapse of the Western economies related to the 2008 financial meltdown - its injection of liquidity, used appropriately to expand infrastructure and domestic consumption of domestic production - is now suddenly faced with the brick wall of a Yuan exchange rate that is not only overvalued, but which makes a significant portion of its products unsellable abroad because they are overpriced in dollars, and unsellable at home, because they are overpriced in yuans.

The solution DOES NOT REQUIRE China to engage in creating artificial branding of its products, or adopt dubious "technological advances" of every sort that increase risk without guaranteeing success.

The solution is MUCH SIMPLER AND MORE EFFECTIVE THAN ALL THAT -- the solution is for China to price its unbranded and unsophisticated products appropriately in relation to the products of the developed countries -- by devaluing the Yuan back to 7.00 CNY/USD.

That solves everything that your solutions cannot solve either completely or in a timely manner.  China should not be distracted by these false "reasons" for its rapid deceleration of manufacturing output.  The problem is that the CHINA PRICE IS OVERPRICED, and it is overpriced BECAUSE THE YUAN IS OVERVALUED BY ITS OWN CENTRAL BANK.

And the solution requires less than one minute of effort for the governor of the PBOC to type in 7.00 CNY/USD and a thousand flowers shall bloom again.

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Post time 2013-8-7 11:53:59 |Display all floors
This post was edited by abramicus at 2013-8-7 12:11

The head of the anti-corruption department of China is supposed to hail from its central bank.  The question now is, who is going to keep an eye on the central bank's questionable exchange rate policies, which are forcing China's manufacturing to implode as the quantitative easing of the past 5 years with increased investments in plant and capital, as well as infrastructure, are prevented from bearing fruit, as China's products of today are already overpriced in foreign currencies by 35%, compared to even just 3 years ago, and also overpriced in yuans in the domestic market by as much, due to the OVERVALUED YUAN?

The loss of China's foreign currency reserve is seen by its falling growth rate in the past 3 years compared to previous years, when computed as percentage change per year.  And where are all the rest of the newly earned dollars going to?  To Japan, whose investors can repatriate more dollars than ever before, courtesy of China's own central bank, for one.  

Is there anyone in charge of the foreign reserve of China at all?  China needs some "evidence-based" economics, as Deng and old Chen Yun used to preach, "cross the river by holding on to rocks".  Right now, China is crossing the river of financial chaos by holding on to the mere "expertise" of a few even when facts already glaringly contradict their predictions and presuppositions.  China's manufacturing is imploding as products are now overpriced both abroad and at home.  Addiing liquidity without correcting the PRICING PROBLEM only increases debt and adds to the bubble the "experts" claim are causing the problem they created.




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Post time 2013-8-7 12:21:50 |Display all floors
China has a huge advantage over western economies in that they haven't spent the past half century
killing people in foreign lands for energy.
If the toy market of the world is faltering because of a declining west, China can simply turn its huge
industrial base into further building up its infrastructure.
Westerns are the only ones crying "The sky is falling".
From their perspective I'm sure it looks that way.
If capitalism promotes innovation and creativity then why aren't scientists and artists the richest people in a capitalist nation?

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