Manufacturing growth may have slowed in China--but it's not enough; Chinese stocks keep falling on worries that the government still needs to step harder on the brakes

05/04/2010 12:33 pm EST


Jim Jubak

Founder and Editor,

Growth in the manufacturing sector slowed in China April. At least according to the most comprehensive private sector survey of manufacturing activity.

Mind you, numbers released by the government on May 1 show that growth in the sector is still accelerating. Which is why on May 3 bank regulators increased reserve requirements to take more cash out of the economy. (See my post )

The private growth index, the purchasing managers’ index put together from a survey of 400 companies conducted by HSBC (HSBC) and Markit Economics dropped to 55.4 in April. We’re not talking about an absolute decline as long as the index stays over 50. But this is a drop does bring the index to a six-month low.

Could it be that government efforts to slow growth in the economy are having an effect?

Unfortunately, it’s just about impossible to tell from the conflicting data. The HSBC/Markit Economics survey gives a bigger weighting to smaller privately owned companies than the government survey. So all the data may be reflecting is the greater sensitivity to lower lending limits by private companies that don’t have what has been the virtually unlimited unofficial access to capital of many government controlled companies. And government controlled companies remain the big dogs in key sectors of the economy such as steel making.

China’s stock markets continued to fall today on the increase in bank reserves. The Shanghai Composite Index fell another 1.2% to 2835. That’s the low for the index since September 30, 2009.

Research from Deutsche Bank calculates that the 0.5 percentage point increase in the reserve ratio to 17% for large banks will take about $44 billion out of China’s financial system. That’s not likely to be enough to significantly slow the economy. Banks made $380 billion in new loans during the first quarter.
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