Category: Company News

A private survey on China’s manufacturing sector showed on Friday that factory activity contracted more-than-expected in January — confirming views that the world’s second-largest economy started the new year on soft footing.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 48.3 in January — the second-consecutive month of contraction and the lowest reading since 2016. January’s reading was also weaker than the 49.5 that analysts polled by Reuters expected, and the 49.7 reported in December.

A reading above 50 indicates expansion, while a reading below that level signals contraction.

The PMI is a survey of businesses about the operating environment. Such data offer a first glimpse into what’s happening in an economy, as they are usually among the first major economic indicators released each month. Investors have been closely watching economic indicators from the world’s second-largest economy for signs of trouble amid domestic headwinds and the ongoing U.S.-China trade dispute.

“Latest survey data signalled subdued overall operating conditions in the Chinese manufacturing sector at the start of 2019,” the statement by Caixin and IHS Markit said. “Softer demand conditions led companies to revise their production schedules … Underlying data indicated that weakness largely stemmed from muted domestic demand.”

The Caixin PMI data followed the release of China’s official manufacturing PMI on Thursday by the National Bureau of Statistics. The official data came in at 49.5 — higher than 49.3 expected by analysts in a Reuters poll and the 49.4 reported in the previous month.

The two PMI surveys on the Chinese manufacturing sector showed different readings because of the types of companies being polled. Large businesses and state-owned enterprises make up a large proportion of responses in the official PMI, while the Caixin indicator has a bigger mix of small- and medium-sized firms.

Chinese authorities have introduced measures to support the economy in the past year, with a particular focus on helping to boost smaller firms. But Friday’s release of the Caixin measure indicated that the policies introduced so far to support the Chinese economy have not worked, said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin.

“On the whole, countercyclical economic policy hasn’t had a significant effect,” Zhong said in a statement. “China is likely to launch more fiscal and monetary measures and speed up their implementation. Yet the stance of stabilizing leverage and strict regulation hasn’t changed, which means the weakening trend of China’s economy will continue.”

Jian Chang, Barclays’ chief China economist, agreed that Beijing needs to do more. She told CNBC’s “Street Signs” that Barclays is expecting China’s central bank to cut benchmark interest rates by 25 basis points twice this year — in the first and second quarters, respectively — to further boost the economy.

But such supportive measures may take time to be effective, economists said. Economic growth in China could stay weak in the first half of 2019 given both external and domestic challenges, Citi economists wrote in a Thursday note. Last year, growth in China slowed to 6.6 percent — the lowest expansion rate in 28 years.

China’s manufacturing sector is not the only one feeling the pinch. Other export-oriented economies such as Japan, South Korea and Taiwan also reported weaker PMI numbers and lackluster factory outlook for 2019.

A private survey on China’s manufacturing sector showed on Friday that factory activity contracted more-than-expected in January — confirming views that the world’s second-largest economy started the new year on soft footing.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 48.3 in January — the second-consecutive month of contraction and the lowest reading since 2016. January’s reading was also weaker than the 49.5 that analysts polled by Reuters expected, and the 49.7 reported in December.

A reading above 50 indicates expansion, while a reading below that level signals contraction.

The PMI is a survey of businesses about the operating environment. Such data offer a first glimpse into what’s happening in an economy, as they are usually among the first major economic indicators released each month. Investors have been closely watching economic indicators from the world’s second-largest economy for signs of trouble amid domestic headwinds and the ongoing U.S.-China trade dispute.

“Latest survey data signalled subdued overall operating conditions in the Chinese manufacturing sector at the start of 2019,” the statement by Caixin and IHS Markit said. “Softer demand conditions led companies to revise their production schedules … Underlying data indicated that weakness largely stemmed from muted domestic demand.”

The Caixin PMI data followed the release of China’s official manufacturing PMI on Thursday by the National Bureau of Statistics. The official data came in at 49.5 — higher than 49.3 expected by analysts in a Reuters poll and the 49.4 reported in the previous month.

The two PMI surveys on the Chinese manufacturing sector showed different readings because of the types of companies being polled. Large businesses and state-owned enterprises make up a large proportion of responses in the official PMI, while the Caixin indicator has a bigger mix of small- and medium-sized firms.

Chinese authorities have introduced measures to support the economy in the past year, with a particular focus on helping to boost smaller firms. But Friday’s release of the Caixin measure indicated that the policies introduced so far to support the Chinese economy have not worked, said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin.

“On the whole, countercyclical economic policy hasn’t had a significant effect,” Zhong said in a statement. “China is likely to launch more fiscal and monetary measures and speed up their implementation. Yet the stance of stabilizing leverage and strict regulation hasn’t changed, which means the weakening trend of China’s economy will continue.”

Jian Chang, Barclays’ chief China economist, agreed that Beijing needs to do more. She told CNBC’s “Street Signs” that Barclays is expecting China’s central bank to cut benchmark interest rates by 25 basis points twice this year — in the first and second quarters, respectively — to further boost the economy.

But such supportive measures may take time to be effective, economists said. Economic growth in China could stay weak in the first half of 2019 given both external and domestic challenges, Citi economists wrote in a Thursday note. Last year, growth in China slowed to 6.6 percent — the lowest expansion rate in 28 years.

China’s manufacturing sector is not the only one feeling the pinch. Other export-oriented economies such as Japan, South Korea and Taiwan also reported weaker PMI numbers and lackluster factory outlook for 2019.

A private survey on China’s manufacturing sector showed on Friday that factory activity contracted more-than-expected in January — confirming views that the world’s second-largest economy started the new year on soft footing.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 48.3 in January — the second-consecutive month of contraction and the lowest reading since 2016. January’s reading was also weaker than the 49.5 that analysts polled by Reuters expected, and the 49.7 reported in December.

A reading above 50 indicates expansion, while a reading below that level signals contraction.

The PMI is a survey of businesses about the operating environment. Such data offer a first glimpse into what’s happening in an economy, as they are usually among the first major economic indicators released each month. Investors have been closely watching economic indicators from the world’s second-largest economy for signs of trouble amid domestic headwinds and the ongoing U.S.-China trade dispute.

“Latest survey data signalled subdued overall operating conditions in the Chinese manufacturing sector at the start of 2019,” the statement by Caixin and IHS Markit said. “Softer demand conditions led companies to revise their production schedules … Underlying data indicated that weakness largely stemmed from muted domestic demand.”

The Caixin PMI data followed the release of China’s official manufacturing PMI on Thursday by the National Bureau of Statistics. The official data came in at 49.5 — higher than 49.3 expected by analysts in a Reuters poll and the 49.4 reported in the previous month.

The two PMI surveys on the Chinese manufacturing sector showed different readings because of the types of companies being polled. Large businesses and state-owned enterprises make up a large proportion of responses in the official PMI, while the Caixin indicator has a bigger mix of small- and medium-sized firms.

Chinese authorities have introduced measures to support the economy in the past year, with a particular focus on helping to boost smaller firms. But Friday’s release of the Caixin measure indicated that the policies introduced so far to support the Chinese economy have not worked, said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin.

“On the whole, countercyclical economic policy hasn’t had a significant effect,” Zhong said in a statement. “China is likely to launch more fiscal and monetary measures and speed up their implementation. Yet the stance of stabilizing leverage and strict regulation hasn’t changed, which means the weakening trend of China’s economy will continue.”

Jian Chang, Barclays’ chief China economist, agreed that Beijing needs to do more. She told CNBC’s “Street Signs” that Barclays is expecting China’s central bank to cut benchmark interest rates by 25 basis points twice this year — in the first and second quarters, respectively — to further boost the economy.

But such supportive measures may take time to be effective, economists said. Economic growth in China could stay weak in the first half of 2019 given both external and domestic challenges, Citi economists wrote in a Thursday note. Last year, growth in China slowed to 6.6 percent — the lowest expansion rate in 28 years.

China’s manufacturing sector is not the only one feeling the pinch. Other export-oriented economies such as Japan, South Korea and Taiwan also reported weaker PMI numbers and lackluster factory outlook for 2019.

Investors will be paying close attention to India’s budget.

So will voters.

As India unveils its interim budget on Friday, Prime Minister Narendra Modi and his party will likely dole out handouts to attract voters ahead of the general election that’s due to be called by May. The main planks of India’s budget will likely include: A farm sector relief package to attract the crucial farmers’ vote, tax cuts and support for badly hit small and medium businesses.

The ruling Bharatiya Janata Party’s (BJP) suffered a stinging election defeat in December, losing three key states to the opposition party. The budget is all the more crucial now as it marks the last major chance for the BJP to consolidate support from its voter base, pointed out Rajiv Biswas, Asia Pacific chief economist at IHS Markit.

The government’s new budget will likely introduce measures to boost support for rural voters, as well as to small and medium businesses, that were badly affected by the unpopular demonetization program and implementation of the new Goods and Services Tax in the last few years.

The need to maintain fiscal prudence, however, will keep the government’s budget in check, preventing them from giving out too many sweeteners, analysts said.

A relief package for farmers will be a key focus in the budget as they make up a large proportion of the Indian electorate and many of them struggle with high debt and crop failures, analysts said.

“A farm sector package will be a centerpiece of the upcoming Budget, due to the crucial importance of the farmers’ vote, with 69 percent of India’s population still living in rural areas,” said Biswas.

“Key measures that could be included in the BJP’s farm package include income support measures and interest relief for crop loans for small farmers to help mitigate the impact of rural debt distress in many states,” Biswas added.

But the devil is in the details, as debate is ongoing as to what form that relief could take.

Rhetoric has been split on whether the package would include a cash transfer scheme for smaller farmers, loan waivers, or a broader universal income scheme, according to Radhika Rao, an economist at Singapore bank DBS.

Other measures may include personal income tax relief for low income households, and measures to reduce tax and regulatory burden on small and medium-sized businesses, according to Biswas and some other analysts.

Such measures will set the stage for a budget that would be “‘popular’, yet not profligate,” said Vishnu Varathan, Mizuho Bank’s head of economics and strategy.

However, he added: “The need for fiscal discipline means that the BJP cannot be unbridled on using the Budget to dish out ‘goodies’. So a very mild positive effect may be the outcome.”

The farmers relief package is thus both “a political hot potato” as well as “an onerous fiscal burden,” said Varathan.

The finance ministry had cut spending amounting to 750.8 billion rupees ($10.55 billion) in the last financial year ending in March 2018.

But in its desperation to find ways to pay for pre-election spending, the government has also pressed the central bank to part with more of its reserves, causing a rift that culminated in the resignation of its governor in December.

According to a Reuters report citing two government sources, the farm relief package alone could run up to at least one trillion rupees ($14 billion) — that’s if the government is to have a meaningful impact on which way voters lean in rural areas, home to two-thirds of Indians.

A Morgan Stanley report in January estimated that the farmers package could cost 0.7 percent of India’s GDP if it was to focus on small and marginal farmers, or an annual 0.2 percent of GDP or 440 billion rupees.

Regardless, the pressure is on the BJP to address the ongoing farmers’ distress, said Rao, as the opposition Indian National Congress has pledged a “minimum income guarantee” to the poor, if voted to power.

Experts say the likely optimal option could be a cash transfer to farmers instead of full loan waivers, but that might be somewhat of a disappointment to farmers, said Varathan.

However, “the overall political calculus will still shift against him (Modi) should he try to be far more generous than the Budget allows,” Varathan said.

Given that financial constraint, any election sweeteners in the budget is likely to be long-term in nature, said Capital Economics Senior India Economist Shilan Shah.

“They could include pledges to boost spending in rural areas or exempt more SMEs from the GST. This type of announcement would give the government wriggle room to adjust course if needed at a less politically-sensitive time,” he said.

— Reuters contributed reporting to this story.