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Published On: Thu, Aug 21st, 2014

China’s August flash PMI falls more than estimates suggest

The China preliminary manufacturing gauge for August exceeded analysts’ expectations on the downside, owing to a credit and property slump.

The China preliminary manufacturing gauge for August exceeded analysts’ expectations on the downside, owing to a credit and property slump.

The China manufacturing gauge for the month of August displayed a figure, weaker than the median analysts’ forecast. The larger slump was due to credit and property slump; it enhanced the risks for the Chinese economy of missing the growth target for the year.

The flashPMI was 50.3, down from the median projection of 51.5 and from the July figure of 51.7. If the trend persists and the figure is confirmed on September 1, the indicator will be on its lowest mark for the last threemonths.

The release resulted in a drop for Chinese stocks and for the Australian dollar likewise; the yuan in turn marked its strongest weakening since July. The shrinking credit expansionand slowed investment spending in July, combined with the preliminary August PMI data, are expected to further press the government into supporting expansion.

There was a 0.4 percent decline in the MSCI Asia Pacific Index of stocks in Tokyo. The Shanghai Composite Index was 0.9 percent down at lunchtime. The AUD/USD touched a session low of 0.9237.

The yuan continued its fall against the dollar reaching a level of 6.1496, the biggest drop since July, when the People’s Bank of China introduced a 0.08 percent cut in the reference rate.

The final August PMI reading is to be released on September 1, together with a manufacturing index announced by the National Bureau of Statistics.

Today’s report typically relies on 85 to 90 percent of responses by surveyed purchasing managers in over 420 companies. Analysts’ estimates of today’s reading were in the 50.6 to 52.0 range.

US and European recoveries have boosted China’s exportgrowth for July to 14.5 percent, compared to a year earlier. China’s GDP for 2014 is forecasted to rise by 7.4 percent, which marks no change from the July survey.

The unexpectedly weak July credit growth, industrial production and fixedassets investments have aroused expectations that the government would take measures to facilitate economic expansion. These steps are expected to include accelerated fiscal spending andtargeted monetary easing.

The overall economic situation in the country is improving, albeit there are uncertainties and downward pressures that pose obstacles, the Chinese cabinet stated on the government website last week.

The Chinese State Council announced this month China’s policy is going to target reasonable growth in money supply and credit, keeping the wise monetary policy course intact.

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