China Manufacturing Contracts: "Demand still remaining weak"

The HSBC China Manufacturing Flash Purchasing Managers' Index, compiled by Markit, increased +1.3 to 49.5 in July, a 5-month high. A contraction was expected and ongoing slowdowns are projected. This is the 9th consecutive month below 50, which indicates contraction.

The reading is above the 32-month low of 47.7 in November 2011. An index reading above 50 indicates an overall increase in manufacturing. The China Manufacturing PMI has been just below 50 for 12 of the past 13 months.

China Manufacturing PMI Manufacturing began contracting, an Index reading of less than 50, in July 2011. The chart peak was 55.3 in November 2010. The short, intermediate, and long-term trends are now level. The PMI is a percentage - not a total.



Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, said: "July's headline PMI picked up modestly to a five-month high of 49.5, suggesting that the earlier easing measures are starting to work. That said, the below-50 July reading implied demand still remaining weak and employment under increasing pressure. This calls for more easing efforts to support growth and jobs. We believe the fast falling inflation allows Beijing to do so and a more meaningful improvement of growth is expected in the coming months when these measures fully filter through".



The HSBC Flash China Manufacturing Purchasing Managers’ Index™ (PMI™) is published on a monthly basis approximately one week before final PMI data are released, making the HSBC PMI the earliest available indicator of manufacturing sector operating conditions in China. The estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data.

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Baidu Earnings Review: Record Performance Beats!

Baidu reported QE June 2012 financial results on Monday, July 23

Baidu the Chinese Stock Star beat their Q2 guidance and analysts' estimates, reporting record quarterly total revenues, operating income, net income, and earnings per share. Gross, operating, and net margins rebounded to well above historical levels.

Although record performances continue to be reported and projected, the YoY growth rates for total revenues, net income, and earnings per share are slowing. The 8-quarter averages have been an incredible +80%, +100%, and +100%, respectively. For the current Q2 these were +60%, +70%, and +68%, which most companies and investors dream about. The historical growth rate is apparently impossible to maintain, even for Baidu.

Result, QoQ Change, YoY Change
Total Assets: RMB28.55 billion, +14%, +99%
Total Revenues: RMB5.46 billion, +28%, +60%
Net Income: RMB2.77 billion, +47%, +70%
Earnings per Share ADS: $7.86, +46%, +68%

CEO Robin Li and CFO Jennifer Li are estimating record Q3 revenues of RMB6.245 billion to RMB6.410 billion. This is an increase of 49% to 53% YoY, compared to the 9-quarter average of +79%. That is how spectacular Baidu growth has been. The problem here is YoY revenue growth is slowing even though vastly superior to mere mortal companies.

* Unless otherwise noted, currency amounts and data below are in Chinese Renminbi (RMB) *
















"We are pleased to announce strong results for the second quarter despite macro headwinds and challenging comparisons with the same period last year," said Robin Li, chairman and chief executive officer of Baidu. "Our efforts to expand our customer base continue to make solid progress." Mr. Li continued, "In the coming quarters, we will maintain momentum by rolling out optimized sales processes and more advanced tools to help current and potential customers increase returns on their online marketing spend. We will also continue to actively explore the vast opportunities in China's fast-emerging mobile Internet and cloud sectors."

Jennifer Li, Baidu's chief financial officer, commented, "We once again posted solid growth on the top and bottom lines even as we continued to invest aggressively in expanding our network infrastructure and talent base. Moving forward, this robust investment strategy will be key to achieving long-term, sustainable growth and strengthening Baidu's position at the heart of China's Internet ecosystem."

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China LEI Rises: "Stabilization of economy will remain tenuous"

The Conference Board: China Monthly Leading Economic Index

China Monthly LEI The current June 2012 reading is a post-recession high, but growth is slowing.



Andrew Polk, resident economist at The Conference Board China Center in Beijing, said "In June, the month-on-month growth rate of the China LEI slowed significantly with all components except bank loans declining. Overall, the short term trend in the leading economic index indicates that economic activity is still policy - and credit -led. Bank credit expansion has been the only consistently rising leading index component over the last six months. Coupled with slowing and volatile (month-on-month) growth in the CEI for China, the composite indexes suggest that the real economy is not showing any material rebound, and that this situation is likely to persist for several months to come. Until monetary loosening passes through to fuel real economic activity and boost private sector demand, the stabilization of the economy will remain tenuous"

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China Manufacturing Contracts to 7-Month Low: "Lack of Demand"

The HSBC China Manufacturing Purchasing Managers' Index, compiled by Markit, decreased -0.2 to 48.2 in June, a 7-month low. A contraction was expected and ongoing slowdowns are projected. This is the 8th consecutive month below 50, which indicates contraction. The reading is above the 32-month low of 47.7 in November 2011. An index reading above 50 indicates an overall increase in manufacturing. The China Manufacturing PMI has been just below 50 for 11 of the past 12 months.

Another PMI, by the Chinese Federation of Logistics and Purchasing, dipped -0.2 to 50.2 in June, indicating near stagnation. This contradicts the HSBC China PMI. What to make of this? How about averaging them. The two contrasting PMI’s averaged together are 49.2, which indicates a slight contraction for China manufacturing. There has been some recent questioning of the CFLP PMI being overstated.

China Manufacturing PMI Manufacturing began contracting, an Index reading of less than 50, in July 2011. The chart peak was 55.3 in November 2010. The short, intermediate, and long-term trends are downwards. The PMI is a percentage - not a total.



Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC, said: "It is all about growth and employment. As external demand has weakened and domestic demand hasn't shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown, hence weighing on the jobs market. But as inflation eases sharply, Beijing has plenty of room and policy ammunition to avoid a hard landing. We expect more decisive easing efforts to come through in the coming months."





USA Manufacturing Contracts in June to 35-Month Low!

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China Manufacturing Contracts: "External Headwinds Remaining Strong"

The HSBC China Flash Manufacturing Purchasing Managers' Index, compiled by Markit, decreased -0.3 to 48.1 in June, a 7-month low. This is the 8th consecutive month below 50, which indicates contraction. The reading is above the 32-month low of 47.7 in November 2011.

An index reading above 50 indicates an overall increase in manufacturing. The China Manufacturing PMI has been just below 50 for 11 of the past 12 months. The flash estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data to be reported at the beginning of the month.

China Manufacturing PMI Manufacturing began contracting, an Index reading of less than 50, in July 2011. The chart peak was 55.3 in November 2010. The short, intermediate, and long-term trends are downwards. The PMI is a percentage - not a total.



Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC, said: "China’s manufacturing sector continued to slow in June, though the pace of slowdown seems to be slowing. With external headwinds remaining strong, exports are likely to decelerate in the coming months. The sharp fall of prices and moderation of new orders suggest weak domestic demand, posing destocking pressures for Chinese manufacturers. All will likely weigh on the jobs market. As such, we expect more decisive policy stimulus to reverse the growth slowdown."





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