China LEI Spikes: "Raises expectations for moderate rebound in growth"

The Conference Board: China Monthly Leading Economic Index

The August 2012 China Monthly Leading Economic Index rose a strong +4.0 and +1.69% to 240.4 (preliminary), another post-recession high. The China Monthly Coincident Economic Index increased for the 4th consecutive month. Overall, continuing economic growth is forecast, but volatility and uncertainty has increased.

China Monthly LEI The current August 2012 reading is a post-recession high.



Andrew Polk, resident economist at The Conference Board China Center in Beijing, said "The improvement in the China LEI in August raises expectations for a moderate rebound in growth, even as current economic conditions remain subdued. The LEI’s largest increase in seven months was primarily due to a rebound in real estate activity, with strong credit growth and an improvement in consumer expectations also adding to the uptick. The manufacturing and trade sectors continued to underperform. Despite the somewhat improved outlook, recent LEI trends suggest the rebound in real estate may be tenuous and uncertainty around credit-led growth remains a concern."

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Corporate Accounting: Can You Trust China?

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Can You Trust China?

Steve Orlins, National Committee on U.S.-China Relations, explains why corporate accounting in China should not to be trusted. CNBC's Jeff Cox joins the discussion.

China’s Corporate Governance Draws More Fire

HONG KONG (MarketWatch) — Concern over Chinese corporate governance is growing, with one major Hong Kong brokerage warning of increased risks of corporate fraud as the economy slows, and a noted investor casting doubt on China’s accounting.

CLSA head of Asia research Amar Gill said he was concerned that many of China’s publicly listed companies could undergo an increase in abuses, with the potential for some insiders to drain such companies of cash as if they were personal ATM machines.

Gill warned financial strains weighing on individual investors could result in cases where “controlling shareholders will use listed companies to bail out their private interests.” Gill made the remarks at a news conference to announce the results of CLSA’s 2012 report on corporate governance in Asia.

In the report, China ranked ninth of 11 markets tracked for the year, trailing behind South Korea, but ahead of the Philippines and Indonesia. China scored 45 on the 100 point scale, slipping 4 points from its previous ranking, completed in 2010.

“While economic conditions are still tough, you have more likely a negative scenario for corporate-governance surprises, and so if I had to guess for the next year, more likely than not, the average score for Chinese companies will be slightly lower,” Gill said.

The report, conducted in association with the Asia Corporate Governance Association (ACGA), examined 864 companies listed on markets within the Asia-Pacific region. Singapore ranked highest, followed by Hong Kong, Thailand and Japan.

Jamie Allen a representative from the ACGA, said there were also instances where Chinese companies were able to use state-secrecy laws to shield their books from scrutiny. He said the rules were at odds with the need for independent scrutiny of publicly listed companies. “Should a company be listed if auditors are not allowed to do their job?” Allen asked.

The report coincided with sharp criticism of Chinese corporate and government data by famed short-seller and head of Kynikos Associates, Jim Chanos.

Chanos told CNBC in an interview that he sees Chinese economic data as inaccurate and often manipulated, with corporate numbers equally unreliable, echoing longstanding criticism among some investors.

“I would take issue with almost any corporate accounting in China. It is that bad,” Chanos said.

He said Western capital flowing into China was unlikely to return, describing the nation as “a classic emerging-market Roach Motel, except it’s a really big one. ... It’s very difficult to earn adequate returns for capital and get your capital back,” he said.

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China Manufacturing Contracts for 11th Consecutive Month: "Remains lackluster"

The HSBC China Manufacturing Flash Purchasing Managers' Index, compiled by Markit, increased +0.2 to 47.8 in September, just above the 41-month low of 47.6 in August. That was the lowest since March 2009. A contraction was expected and ongoing slowdowns are projected. This is the 11th consecutive month below 50, which indicates sector contraction. The China Manufacturing PMI has been just below 50 for 14 of the past 15 months.

China Manufacturing PMI by Month Manufacturing began contracting, an Index reading of less than 50, in July 2011. The chart peak was 55.3 in November 2010. The PMI is a percentage - not a total.



Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, said: "China’s manufacturing growth is still slowing, but the pace of slowdown is stabilising. Manufacturing activities remain lacklustre, thanks to weak new business flows and a longer than expected destocking process. And this is adding more pressures to the labour market and has prompted Beijing to step up easing over the past weeks. The recent easing measures should be working to lead to a modest improvement from 4Q onwards.”.

China Manufacturing PMI Moving Averages The short, intermediate, and long-term trends continue downwards. The PMI is a percentage - not a total.



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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China Manufacturing Contracts for 10th Consecutive Month: "Intensifying downward pressure"

China Manufacturing PMI by Month



Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, said: "The final reading of the HSBC manufacturing PMI (August) confirmed that China's manufacturing sector still faces intensifying downward pressure. New export orders contracted at the fastest pace since March 2009, this, combined with a record high in stocks of finished goods sub-index, and a 41-month low employment index, suggests China's exporters are facing increasing difficulties amid stronger global headwinds. Beijing must step up policy easing to stabilize growth and foster job market conditions".

China Manufacturing PMI Series Moving Average



Chinese Job Losses Continue "Staff numbers in the Chinese goods producing sector decreased during August, with the rate of job shedding the fastest in 41 months. The latest decrease in headcounts was the sixth in as many months. Reduced employment in part reflected falling new order volumes."