MARKETS SPECTATOR: Chinese data riddle

Recent Chinese data is likely to sharpen the reliability debate, as concerns grow the official figures belie business credit and activity problems.

On the face of it, weekend news that China’s official manufacturing purchasers index rose in May to 50.8 from 50.6 in April should be good news for Australian stock investors. But for some observers of the Chinese economy, the perennial question of the reliability of Chinese data is rearing its head again.

The fact the data was above most forecasts may be neither here or there. But the data comes after figures from HSBC shows manufacturing in Australia’s biggest trading partner (it takes about a fifth of Australian exports) contracted this year.

“This is likely to sharpen the debate over Chinese economic data,” Matt Sherwood, the strategist at fund manager Perpetual, says. He points out the International Monetary Fund and the Organisation of Economic Cooperation and Development have lowered their 2013 forecast for Chinese economic growth to 7.75 per cent from 8 per cent and 7.8 per cent from 8.5 per cent respectively.

Nomura’s Australian strategist, Tim Rocks, says HSBC’s data and other privately collated information on the Chinese economy such as electricity usage and freight transportation through rails and ports show a slowdown compared to previous levels and are “much weaker than headline data”.

Perhaps more of a concern for those investors who hoped Chinese economic growth and demand for Australian commodities would offset weaknesses in other parts of the domestic economy, Rocks says credit growth is increasing in China but the borrowing is not being used in investments. Rather, credit is being used perversely to shore up Chinese company balance sheets, he says.

The slowdown in the Chinese economy is reflected in the iron ore price, Rocks says.

China buys the bulk of Australia’s biggest export, iron ore. The spot price for iron ore imported through the Chinese port city of Tianjin fell a fifth consecutive day on May 31 by $US1.20, or 1.1 per cent, to $US110.40. The Tianjin spot price had fallen five consecutive days last week or 8.7 per cent and has slumped 31 per cent from its 2013 high of $158.90 on February 20, according to Bloomberg data.

In New York on May 31, BHP Billiton’s American depository receipts fell 3 per cent. Rio Tinto’s dropped 4.1 per cent. 

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