China Beige Book Shows Slowdown, Opposite Official Data

China Beige Book Shows Slowdown, Opposite Official Data

China’s economy slowed this quarter as growth in manufacturing and transportation weakened in contrast with official signs of an expansion pickup, a private survey showed. Increases in business-investment and real estate revenue also slowed, while service industries picked up and employees became tougher to find, the survey from New York-based China Beige Book International said yesterday. The report is based on responses from 2,000 people from Aug. 12 to Sept. 4 as well as 32 in-depth interviews conducted later in September.The quarterly report, modeled on the U.S. Federal Reserve’s Beige Book business survey, diverges from government figures showing faster July and August gains in factory production that have spurred analysts from Citigroup Inc. to Deutsche Bank AG to upgrade expansion estimates. Nomura Holdings Inc. is among banks skeptical that any rebound will be sustained next year.

The results “show the conventional wisdom of a renewed, strong economic expansion in China to be seriously flawed,” China Beige Book President Leland Miller and Craig Charney, research and polling director, said in a statement.

The data “reveal weakening gains in profits, revenues, wages, employment and prices, all showing slipping growth on-quarter — no disaster, but certainly not the powerful expansion suggested by the consensus narrative.”

Growth Measures

The report, like the Fed’s version, doesn’t give estimates of gross domestic product growth or other indicators beyond the survey results. The economy expanded 7.5 percent in the April-June period from a year earlier, slowing for a second quarter, according to China’s National Bureau of Statistics. The government has since introduced measures including faster railway spending and tax cuts to aid expansion.

The first China Beige Book, from the second quarter of 2012, said the economy was picking up, a few months ahead of official data indicating a rebound. This year’s second-quarter report showed expansion slowing across the country and a decline in companies taking out loans.

The latest survey said 47 percent of manufacturers reported revenue gains, down 6 percentage points from the second-quarter survey. Growth in export orders was “stable” for the U.S. and Europe and “off a bit” in Asia and developing nations outside of Asia.

In transportation, including shippers, 51 percent of respondents said revenue rose, down 18 percentage points. Fifty-three percent of a broader sample of businesses said investment rose, a 4-point decline. Service revenue rose for 57 percent of respondents, up 3 points.

Borrowing Costs

The survey said bank-loan gains ebbed and borrowing costs declined while companies used non-bank channels more often. Forty-six percent of bankers said loans rose, down 14 percentage points from the prior survey, and there was a 20-point drop in the share expecting credit availability to ease in six months. The mean interest rate on all new loans fell 47 basis points to 6.63 percent, China Beige Book said.

So-called shadow lenders’ share of financing rose to 29 percent of loans in the third quarter, up 5 percentage points, the survey said.

Not all the China data showing a rebound have come from government sources. A report Sept. 23 from HSBC Holdings Plc and Markit Economics showed manufacturing strengthened more than estimated this month, mirroring an August increase in a similar government-produced index.

China’s statistics-bureau chief, Ma Jiantang, said earlier this month that the agency has “zero tolerance” for falsified data after it publicized cases of manipulated local numbers and the customs bureau cracked down on fraudulent export invoices. Li Keqiang, who became premier this year, said in 2007 that GDP figures were “man-made” and “for reference only,” according to a WikiLeaks cable.

To contact Bloomberg News staff for this story: Scott Lanman in Beijing at slanman@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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