China’s PMI saw a marginal improvement on June’s 50.1 to 50.3 in July, a slight fillip in the otherwise negative past few months for the manufacturing industry. While it is far too early to predict whether this rebound is just temporary or a sign of a recovery, it does offer hope that China’s slowdown is stabilizing. Larger companies and state-owned companies during this time have superior access to bank loans leaving them less vulnerable to the state’s efforts to tighten up on lending. On the other hand, SMEs have struggled to compete globally as export orders dropped for the fourth month consecutively, albeit at a slower and slower pace, in industries such as toys, clothing, electronics and other manufactured products, a likely trickle effect from the weak European economy which isn’t yet showing signs of recovery.
The domino effect of China’s manufacturing decline has resulted in countries such as Australia receiving less demand for commodities and countries such as South Korea, Taiwan amongst other Southeast Asian countries receiving less demand for industrial components. Moving forward, to avoid a potential lending boom spiraling out of control China will look to further reduce risk in its economy by hiking up interest rates on loans further still, the credit shortage that began in June is likely to have negative ramifications for private businesses in particular who are looking to start up and generate more jobs and wealth.
Source: Global Intelligence Alliance