There is little doubt that China is entering into a recession. The government of China’s statistics do not indicate this, but another key indicator does: the purchasing manager’s index. When it falls below 50, this indicates contraction. The PMI for China’s manufacturing sector is headed for 48.1.
When China’s manufacturing sector is contracting, the urban economy is contracting. China is not a nation of service industries.
The PMI is a privately assembled index.
London’s Financial Times reports:
Virtually every component of the PMI survey, from manufacturing output to stocks of finished goods, pointed in a negative direction. But the declines were nowhere near as severe as late 2008 when the global financial crisis erupted.
The central bank cut interest rates early in June. It had not done this in almost four years. This reverses its anti-inflation stance.
This is the classic sign of imminent recession. A central bank tries to put a lid on rising prices. It raises interest rates by cutting the rate of growth of money. Result: recession.
It happened to Bernanke. It’s going to happen in China.
The information of PMI hit today. What has not hit is a story reported in a small-circulation newsletter on commodities.
First, we were told from friends in Australia that China had suspended payments on coal contracts from Australia. Then from associates in Shanghai we were told that there are large stocks of coal at the big ports in northern China; that a significant tonnage of coal imports have either been postponed or importers have just defaulted on their purchases.
This is a rumor, but it conforms to information coming out of China through non-government sources.
China is the second-largest economy after the United States. It points to where Asia’s economy is heading: down.
Europe is in a recession. China is heading into a recession. Asia will follow.
That leaves only North America. The U.S. economy is weak. It is in no position to serve as the little engine that could to pull the rest of the world into prosperity. That is a Keynesian myth anyway.