China Construction Cos Default Trumps Positive Economic Data

Apr 1 2014, 4:03pm CDT | by

China Construction Cos Default Trumps Positive Economic Data
Photo Credit: Forbes Business

China’s official purchasing managers index came out on Tuesday over 50, following back to back declines.  But a new default today trumped any positives in the market.  The iShares FTSE China (FXI) exchange traded fund rose just 0.34%, underperforming the MSCI Emerging Markets Index by nearly 90 basis points.

The good news came in the form of China’s PMI index tracking above 50 for the first time this year.  That is surely better than a decline, but investors are not getting too excited as credit problems trump all.

The National Bureau of Statistics said PMI rose to 50.3 in March, the first increase since November, beating consensus estimates of 50.1. The increase was led by the PMI for large enterprises, which rose to 51 in March from 50.7 in February.  China’s economy is moving like a tortoise. And as the credit crisis unfolds, the Central Bank will likely get tighter with bank lending.

Nevertheless, the headline reading beat the HSBC PMI which fell to 48 in March from 48.5 in February.

Jian Chang, an economist for Barclays Capital in Hong Kong, said official PMI gives a better picture of overall economic conditions because of its greater sample size: 3,000 companies versus about 420 in the HSBC survey.  ”It is also noteworthy that the improvement in the NBS PMI came about despite the drag from domestic restructuring efforts – as the government tries to reduce excess capacity in five major industries,” Chang said.

Today’s PMI data should come as a relief for policymakers, as it suggests that the economy is not slowing as quickly as earlier data indicated.

Last week, Premier Li Keqiang said that the government has policies ready to counter any volatility this year, as well as the capability to maintain growth in a reasonable range. As it is, investment banks have been reducing their growth forecasts.  China International Capital Corporation, one of the largest investment banks in China, lowered their growth forecast to 7.3% from 7.6% last week.

Beijing is going to take more action to stabilize growth while also being mindful of credit defaults, which averaged one per week last month — from the overbuilt steel sector to real estate and the first-ever bond default by a Chinese company, Chaori Solar Energy. The maker of solar cells and panels defaulted on a $15 million coupon payment to bond holders in mid-March.

Then on Tuesday, another default was reported, this time in the junk bond space when Xuzhou Zhongsen Tonghao, a manufacturer of construction materials defaulted on a $29 million bond, according to a report in The 21st Century Business Herald, a financial newspaper based in Guangzhou.

Since mid-March, investors have expected the government to accelerate planned investment projects and roll out stabilization measures to ensure its “bottom line” for 7.4% growth is achieved.  However, the government will have to be careful with fixed asset investment going forward. It cannot afford more overcapacity in sectors as diverse as solar and construction if the one-year old Keqiang government is to build a sustainable economy.

China won’t let its economic growth slip too fast and has been successful at avoiding at hard landing, according to the front-page forecast in the March 28 edition of The Kiplinger Letter. 

Odds favor a 7.2% to 7.5% expansion this year, down from 7.7% last year. That’s not slow enough to damage the U.S. economy, shaving just a tenth of a percentage point from GDP, at most. Other countries — mainly commodity exporters — will be less fortunate.

Looking ahead, Kiplinger forecasts slower economic gains in China.  By 2020, a pace of 6% to 7% a year is likely as the Chinese economy matures.

See: Another Default In China As Construction Company Misses Bond Payment – The New  York Times

What Do Chinese Defaults Mean To Chinese Financial Markets? – CFA Institute

China’s Central Bank Battles Bubbles – Bloomberg Businessweek/>/>

/>

Top Global Real Estate Markets For Affluent Chinese

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Albania opens Communist-era nuclear bunker to public
Tirana, Nov 29 (IANS/EFE) The Albanian government has opened to the public the country's biggest Communist-era nuclear bunker, a secret symbol of the 40-year Cold War and the extravagances of the Communist regime.
 
 
Alleged flu vaccine-related deaths spark fears in Italy
Rome, Nov 29 (IANS) At least nine people were reported to have died in Italy for reasons allegedly linked to a flu vaccine which has been suspended by the Italian competent authority for drugs AIFA, media reported Friday.
 
 
Ireland to repay 9 billion euros IMF loans by year end
Dublin, Nov 29 (IANS) Irish Finance Minister Michael Noonan said Friday his country will repay 9 billion euros ($11 billion) of the bailout loans it owed to the International Monetary Fund(IMF) by the end of the year.
 
 
China to use new test to prevent Ebola
Beijing, Nov 28 (IANS) Chinese health authorities have approved three home-grown Ebola test reagents to be used for preventing the virus' spread.
 
 
 

Latest from the Network

Abigail Breslin slams ex Michael Clifford
Abigail Breslin has slammed her ex, Michael Clifford. The 'My Sister's Keeper' actress went on a date with the 5 Seconds of Summer guitarist last year but it seems as though it didn't end well after she released a song...
Read more on Celebrity Balla
 
Kevin Bacon to sizzle in Jungle
Kevin Bacon is to star in 'Jungle'. The 56-year-old actor will appear in the survival drama, which is based on the true story of Yossi Ghinsberg, an adventurer who found himself lost in the Amazon rainforest for three...
Read more on Movie Balla
 
Mickey Rourke to return to boxing at 62
Mickey Rourke will return to boxing aged 62. The actor will come out of retirement and step into the ring tonight (11.28.14) for the first time in 20 years as he competes against 29-year-old Elliot Seymour. He said: ''...
Read more on Celebrity Balla
 
Kristen Stewart: Actors are isolated
Kristen Stewart claims actors become ''isolated'' because of their fame. The 24-year-old actress has become one of the biggest movie stars in the world following her portrayal of Bella Swan in the 'Twilight' franchise...
Read more on Celebrity Balla
 
Burt Reynolds to sell memorabilia
Burt Reynolds is selling over 600 personal items to stave off bankruptcy. The 78-year-old Hollywood star is reportedly struggling financially so will see awards, cars and costumes go under the hammer in Las Vegas next...
Read more on Celebrity Balla
 
Eddie Redmayne's fear of failure
Eddie Redmayne has a fear of failure. The 'Theory of Everything' star has admitted that like fellow actor, Rachel Weisz, he worries about ever getting hired again. He said: ''I was reading an interview with Rachel Weisz...
Read more on Celebrity Balla
 
Where to Find Black Friday Car Deals
The Black Friday Car Sales events have gained traction over the past couple of years. This year several major brands ran nation-wide commercials announcing their Car Black Friday deals. In the beginning it was creative...
Read more on Auto Balla
 
Indian Aces win inaugural IPTL tie
Manila, Nov 28 (IANS) The much-awaited inaugural International Premier Tennis League (IPTL) got off to a flying start with the Indian Aces notching an impressive 26-16 first victory against the Singapore Slammers at...
Read more on Sport Balla
 
Australian navy's largest ship commissioned
Canberra, Nov 28 (IANS) HMAS Canberra, a 27,000-tonne landing helicopter dock (LHD), was commissioned Friday, providing the Royal Australian Navy (RAN) with one of the world's most capable and sophisticated amphibious...
Read more on Politics Balla
 
Sindhu, Prannoy enter Macau Open semis
Macau, Nov 28 (IANS) Indian shuttlers P.V. Sindhu and H.S. Prannoy came out with contrasting wins to enter their respective semi-finals at the $120,000 Macau Open Grand Prix Gold here Friday. While defending champion...
Read more on Sport Balla