by Grace Zhu in The Wall St Journal, Updated July 30, 2017 11:52 p.m. ET
BEIJING—A gauge of China’s manufacturing activity fell more than expected in July, offering a sign of an anticipated slowdown in the world’s second-largest economy after a strong start to the year.
China’s official manufacturing purchasing-managers’ index fell to 51.4 in July from 51.7 in June, according to data released by the National Bureau of Statistics on Monday. The July reading fell below a median forecast of 51.6 from a Wall Street Journal poll of economists, but still remained above the 50 mark that separates expansion from contraction, as it has for 12 months straight.
The downtick in manufacturing was seen by some economists as the first and expected sign that the economy is slowing after the government began to try to rein in a hot property market and rising corporate debt.
China’s Industrial Dragon Burning Less Hot
“The latest official PMI readings suggest that China’s growth momentum may have waned at the start of the third quarter,” said Julian Evans-Pritchard, an economist with Capital Economics.
China achieved a 6.9% growth rate in the first half of the year, a pace seen as higher than expected by some economists and that gives Beijing a comfortable margin to continue the deleveraging effort, meet the 6.5% growth target for this year and maintain stability ahead of a the leadership reshuffling later this year.
Zhao Qinghe, an economist with China’s statistics bureau, attributed July’s drop in the official manufacturing PMI chiefly to weaker foreign demand and slower production amid hot weather and floods in southern China.
Moving into the second half of the year, some economists have predicted a deceleration in the economy as rising financing costs and some cooling in the real-estate market weigh on growth.
A possible slowdown in the broader economy was also reflected in the decline of nonmanufacturing PMI. The index fell to 54.5 in July from 54.9 in June, as transportation and property sectors softened. Growth in construction was a bright spot, with the sector’s subindex rising to its highest level since December 2013 due to government-backed infrastructure spending.
The tug of war between maintaining growth and deleveraging will continue to play out for the rest of the year, economists said, and the improved growth in the first half enables Beijing to prioritize its focus on financial regulation.
The Chinese economy has been heavily dependent on borrowed money and government-led investment. Government officials and economists both have said the debt-fueled growth model is hard to sustain and has left the economy increasingly overleveraged while delivering a diminished impact on growth.
High-level government meetings—including a once-in-five-years financial work conference last month—have placed the priority on curbing the rapid buildup of debt, especially debt levels at state-owned enterprises.
“We anticipate further weakness ahead as the crackdown on financial risks weighs on credit expansion and economic growth,” said Mr. Evans-Pritchard. https://www.wsj.com/articles/chinas-factory-activity-edges-down-in-july-1501465841?mod=e2tw
China snips red tape for foreign investors in global race for funds and expertise
By Wendy Wu in South China Morning Post, July 31, 2017 at 10.59 pm
China has revamped one of its regulations to cut red tape for foreign firms buying into Chinese businesses, a move expected to ease the way for more mergers and acquisitions as Beijing tries to expand inflows of foreign investment.
Under updated regulations released on Sunday, foreign investors will only need to complete one set of standard forms and notify the Ministry of Commerce if it takes a stake in a local company – as long as the deal does not involve a monopoly or national security.
The revisions are designed to eliminate some of the costly and labyrinthine administrative reviews that have held back foreign direct investment (FDI) in China.
Conditions have deteriorated to such an extent that German ambassador to China Michael Clauss said last year it was “more or less impossible” for a German firm to invest in China through acquisition.
As a result FDI inflows into China have stagnated, amounting to 441.5 billion yuan (US$65.5 billion) in the first half, down 0.5 per cent from a year earlier.
Vice-commerce minister Qian Keming said on Monday that international competition to attract foreign investment was fierce but the latest data showed that the FDI inflows to China were basically “stable”.
The lack of fresh FDI is causing concerns among China’s top leadership, prompting the authorities to step up their efforts to woo foreign investors. “Stabilising” foreign investment is now a priority economic policy for Beijing.
In June, China changed its investment guidelines to open up more sectors to foreign funds.
And Premier Li Keqiang said last week that China would roll out its “free trade zone” policies across the country to open the domestic market wider to foreign investment.
Li also said China would lift caps on foreign stakes in service and manufacturing projects and make it easier for foreign nationals to work in China, adding that all the measures had to be implemented by the end of September.
Once the darling of global investors, China is facing tougher competition to attract interest as domestic costs rise. Electronics giant Foxconn, which employs more than a million workers across China, announced last week that it was spending US$10 billion to set up a factory in the US state of Wisconsin.
China Minsheng Bank chief economist Wen Bin said a key economic job for China was to compete with other countries for investment.
“Foreign investment is very important for local businesses, private and state-owned, as they can bring in new management mindset and increase competitiveness,” Wen said.
Lu Zhengwei, chief economist with Industrial Bank in Shanghai, agreed that foreign investors brought more than just funds.
“It is not the problem of money. The most competitive industries in China are the ones that have the greatest amount of opening up, such as cell phones and home electronic appliances,” Lu said.
That is also the message from the top. President Xi Jinping said told a meeting of the Central Leading Group on Financial and Economic Affairs last month that foreign investment could help promote the country’s development and reforms.
But not everybody is convinced yet.
The European Union Chamber of Commerce in China, an influential business lobby group, responded to Xi’s call by saying the best bet would be to level the playing field completely.
“The European Chamber believes the most pragmatic approach would be to replace China’s existing foreign investment regime with a regulatory framework that applies equally to both domestic and foreign enterprises, as soon as possible,” the chamber said.http://www.scmp.com/news/china/economy/article/2104757/china-snips-red-tape-foreign-investors-global-race-funds-and
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