Tue, Jun 24, 2014 - Page 15 News List

Local demand boosts PRC, Japan

Reuters, TOKYO

Manufacturing in China and Japan shrugged off months of decline and returned to growth this month as Beijing’s targeted stimulus measures and Japan’s improving labor market supported domestic demand in Asia’s two largest economies.

However, external demand remained weak for the two export powerhouses in a worrying sign that the US and Europe may not be recovering as strongly as anticipated, meaning it could be difficult to rely on exports for growth.


The stakes are high for China, which may need more stimulus to offset a cooling housing market and avoid a hard landing. Japan’s weak exports take the gloss off the government’s efforts to breathe new life into its economic reform agenda.

“This month’s improvement is consistent with data suggesting that the authorities’ mini-stimulus is filtering through to the real economy,” said Qu Hongbin (屈宏斌), chief economist for China at HSBC, referring to a series of measures announced by the government in recent months to spur activity.

“We expect policymakers to continue their current path of accommodative policy stance until the recovery is sustained,” he added.


The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index (PMI) rose more than expected to 50.8 this month from last month’s final reading of 49.4, beating a Reuters poll forecast of 49.7 and creeping above the 50-point level that separates growth in activity from contraction.

It was the first time since December that the PMI has grown, and the highest reading since November last year, when it was also 50.8.

The flash PMI data is the earliest indicator in a month to help gauge the economic momentum and thus is closely watched by investors.

Asian stock markets and the Australian dollar firmed on the news.

China’s preliminary factory reading for this month indicates sequential growth could pick up to 1.8 percent in the second quarter from 1.4 percent in the first, Lu Ting (陸挺), an economist at Bank of America-Merrill Lynch, said in a note.


“We expect Beijing to continue rolling out more measures to stabilize growth,” Lu added.

The sub-index for new orders, a proxy to measure domestic and foreign demand, rose to 51.8, the fastest pace in 15 months. Much of the increase appeared due to stronger domestic consumption, as growth in new export orders slowed.


The Markit/JMMA flash Japan Manufacturing PMI rose to a seasonally adjusted 51.1 this month from a final reading of 49.9 for last month, showing the first growth in three months.

Japan’s new orders index jumped to 52.0 from 49.6, indicating consumers are shrugging off an increase in the nationwide sales tax on April 1 as strong demand for workers puts upward pressure on wages.


Japan’s export orders continued to contract, thwarting policymakers’ hopes that exports will help the economy shift into a higher gear after the sales tax increase.

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