Clyde Russell is a Reuters market analyst. The views expressed are his own.
LAUNCESTON, Australia, Jan 30 (Reuters) – While it’s probably going too far to say the China HSBC Purchasing Managers’ Index can be discounted, there are good reasons to be cautious about the weak January reading.
The final HSBC PMI dropped to 49.5 from December’s 50.5, falling below the 50-mark that separates expansion from contraction for the first time in six months.
The soft start to the year in global industrial powerhouse has raised investor concerns that growth in China, the world’s biggest commodity consumer, may disappoint and struggle to reach 7.5 percent, which is widely expected to be announced as the official target.
Hongbin Qu, chief economist for China at HSBC, said in a statement that the weakness in the PMI was led by weaker new export orders and “slower domestic business activities”. But is this really such a surprise? Export orders are always likely to come off post the year-end holiday season in the West and domestic business would already have been tailing off ahead of the Lunar New Year holidays, which start on Jan. 31.
The week-long new year celebrations in China can distort economic indicators and commodity import data for the first two months of the year, given that the holidays can fall either in January or February.
This year, the start of the holidays was 10 days earlier than in 2013, which in turn was 18 days later than in 2012.
It’s generally far easier to wait until both January and February data are available before making any calls as to how the start of the year has unfolded in China.
I suspect that they will show that the ongoing trend towards moderating growth rates remains intact.
It was never going to be easy for the Chinese to rotate their economy away from growth being led by fixed-asset investment to one where consumer demand is the key driver.
Certainly, other Asian nations that have largely achieved this, such as Japan (before its stagnation of the past two decades), did so at the cost of considerably slower growth rates.
Much will depend on whether the Chinese authorities can hold their nerve through the inevitable rough patches, or whether they will turn on the infrastructure taps at the first sign gross domestic product growth is falling short of targets.
For the rest of this article, click here: http://uk.reuters.com/article/2014/01/30/column-russell-china-commodities-idUKL3N0L41NI20140130