China's manufacturing sector falls sharply
NEW YORK (CNNMoney) -- China's all-important manufacturing sector took a hit in May, as the country's factories continue to struggle amid global economic woes.
The National Bureau of Statistics said Friday that its official index of purchasing managers' sentiment dropped to 50.4 in May, from 53.3 in April -- its lowest level in five months.
The index bottom out at 49 in November. Any reading above 50 indicates expansion in the sector, while readings below 50 indicate contraction.
Meanwhile, HSBC also issued a report Friday morning showing that factory output fell to 48.4 in May, with average input costs falling for the first time since January. The weak report from the banking company signals the seventh straight month of declining manufacturing activity in China.
World's largest economies
"Companies cited muted global demand conditions as the main reason behind the overall decrease in export sales," the HSBC stated in its report.
The banking company's report also stated that the country's employment fell at the fastest rate in 38 months -- the sharpest decline in more than three years.
Manufacturing accounts for more than a third of the Chinese economy, so the PMI reports are one of the country's most closely watched indicators.
As global economic growth has slowed in the last year, exports to Europe -- China's largest foreign market -- has taken a hit as the debt-ridden region teeters on the brink of recession.
China's manufacturing sector falls sharply - May. 31, 2012
China factory surveys signal wider economic weakness
(Reuters) - China's economy betrayed signs of a broadening slowdown as surveys of its vast factory sector showed momentum eased in May, signaling a deeper-than-forecast deterioration in demand at home and abroad and the likelihood of more policy easing.
The official purchasing managers' index - covering China's biggest, mainly state-backed firms - fell more than expected to 50.4 in May, the weakest reading this year and down from April's 13-month high, with output at its lowest since November 2011.
The HSBC China manufacturing PMI, tracking smaller private sector firms, retreated to 48.4 from 49.3 in April - its seventh straight month below the 50-mark that demarcates expansion from contraction - with the employment sub-index falling to 48.1, its lowest level since March, 2009.
"Growth in Q2 is likely to slow, probably below 7.5 percent year-on-year. That puts the annual growth target at risk and the risks continue to increase because the external environment is weakening," Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, told Reuters.
"The government will still try to get by with targeted, selective measures like the cash for clunkers program, but we will get more monetary measures as well."
The weakening of both index readings at a headline level is worrying for investors who see economic headwinds intensifying around the world and increasingly look for China - the biggest single provider of growth in the global economy - to pick up the slack.
The price of Brent crude oil fell towards $101 a barrel, the euro touched a fresh two-year low and share prices in Hong Kong and Australia fell in the wake of the data.
Although Beijing has announced a raft of reforms to support growth and unlock private investment since mid-May, it is too early for the PMI data to reflect those efforts.
SHRINKING NEW ORDERS
A particular concern for economists was that new orders have begun to shrink while inventories have started to build, implying further softness in the months ahead as firms would meet any uptick in orders with production from existing stock, rather than increasing output.
Most worrisome for China's ruling Communist Party is likely to be the employment risks. The Party is obsessed with maintaining stability ahead of a power transition that gets under way later this year, and in the past has intervened in the economy to preserve jobs and keep workers off the streets.
China's annual economic growth is expected by analysts to fall to 7.9 percent in the second quarter, the first dip below 8 percent since 2009.
The latest Reuters benchmark poll has a consensus growth forecast of 8.2 percent for the full year, which would be the slowest annual expansion since 1999, and economists increasingly expect no meaningful increase in momentum until the second half of 2012.
"As we've said before, this will be no ‘V-shaped' recovery - it will be shallow and volatile, fraught with the risk of policy error," economists at IHS Global Insight said in a client note.
STIMULUS HOPES PLAYED DOWN
Although the official PMI in April was a 13-month high, economic data for the month was unexpectedly weak, alarming the central government as well as outside investors.
The National Bureau of Statistics downplayed the risk of a broader economic deterioration in a statement accompanying the official PMI index.
"The present short-term moderation in growth does not mean the Chinese economy is entering a new recession," it said.
Many investors want China to unleash a massive new stimulus package that will allow them to bet on recovery plays.
Markets have gyrated wildly in recent weeks as speculation on stimulus has intensified, fuelled in part by government steps in the past two weeks to fast-track about 1 trillion yuan ($159 billion) in infrastructure and industrial projects.
A chorus of comment from influential academics in state-backed newspapers this week has also sought to play down expectations that any program would seek to replicate a 4 trillion yuan stimulus package unleashed during the 2008-09 global financial crisis.
That splurge left in its wake a 10.7 trillion yuan mountain of local government debt and helped push consumer price inflation to a three-year peak amid a frenzy of real estate speculation.
Beijing has only just brought inflation under control, helping explain why growth is being sacrificed in the short term. Analysts cite a two-year long program of property curbs as the main reason why China's economic growth in 2012 will be the slowest since 1999.
In order to avoid a second build-up in local government debt, China will allow private capital to help finance many of these projects, particularly in rail and energy and natural gas distribution.
Meanwhile the central bank has cut 150 basis points (bps) from bank reserves - the required reserve ratio or RRR - in three moves since November 2011, bringing the rate down from a record high of 21.5 percent.
Analysts polled by Reuters in May, shortly after the latest cut, expected another 100 bps of cuts this year.
"China needs to stimulate more lending and they need to cut RRR further to achieve that and they will probably cut the lending rate after the May data is released later in June," said Credit Agricole CIB's Kowalczyk.
(Editing by Alex Richardson)
China factory surveys signal wider economic weakness | Reuters
China manufacturing hits lowest 2012 level
Updated | China’s official purchasing managers index (PMI) has fallen to its lowest level this year, after coming in at a weaker than expected 50.4 in May.
China manufacturing hits lowest 2012 level
China Rate Swaps Slump To 18-Month Low As Economic Growth Slows
China Rate Swaps Slump to 18-Month Low as Economic Growth Slows - Bloomberg[
World edges closer to deflationary slump as money contracts in China
All key indicators of China's money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.
Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November.
They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors.
If China were a normal country, it would be hurtling into a brick wall. A "hard-landing" later this year would already be baked into the pie.
Whether this hybrid system of market Leninism – with banks run by Party bosses – conforms to Western monetary theory is a hotly contested point. The issue will be settled one way or the other soon.
What seems clear is that China's economy did not bottom out as expected in the first quarter. It is flirting with real trouble. Yao Wei from Societe Generale says a blizzard of awful data "screams out for easing".
China's electricity output – watched religiously by bears – slumped in April. It is up just 0.7pc over the last year. State investment in railways has fallen 44pc, with an accelerating downward lurch over recent months. Highway construction has dropped 2.7pc. "The data shows extreme weakness in the Chinese economy," said Alistair Thornton from IHS Global Insight in Beijing.
The Yangtze shipyards tell the tale. Caixin magazine said eight of the 10 largest builders in the country have not received a single new order this year. "A wave of closures in the shipbuilding industry has yet to begin. A hurricane is approaching," said one official.
Housing sales slumped 25pc in the first quarter, testimony to the zeal of regulators. This has since fed into a drastic fall in new building. Mr Thornton said floor place under construction fell 28.3pc in April.
This is hardly a sideshow. The sector employs 10pc of the Chinese work-force, and a further 20pc indirectly. Land sales provide 70pc of tax revenue to local authorities and 30pc to the central government. It is the "fair weather" financing illusion, as
we saw in Ireland. China's scope for fiscal stimulus may be constrained if property goes into a long slump.
The property correction is deemed benign because it is planned. Premier Wen Jiabao wishes to forces down prices as a social welfare policy. Yet did the Fed not slam on the brakes in 1928 to choke an asset boom? Did the Bank of Japan not do likewise in 1990, only to find that boom-bust deflation has its own fiendish momentum? Once you let credit rise by 100pc of GDP in five years – as China has, more than in those US or Japanese episodes – you are at the mercy of powerful forces.
Something odd is now happening. The People's Bank said new loans fell from $160bn (£99.5bn) in March to $108bn in April. Non-conventional lending seized up altogether. Trust lending fell by 96pc, bankers' acceptance bills by 90pc. This is astonishing data.
It may not be as easy for Beijing to turn the tap back on again. Loan demand has been falling for months. Banks are offering credit. Companies are refusing to take it. This is the old Japanese story of pushing on a string, or the European story today.
"China is in deflation," says Charles Dumas from Lombard Street Research. Yes, consumer price inflation is 3.4pc – though falling – but consumption is a third of GDP. Fixed investment is 46pc, and here prices have dropped 3.5pc in six months. Export prices have dropped 6.6pc.
The authorities have belatedly responded, cutting the reserve ratio by 50 points to 20pc over the weekend. It is thin gruel. Are we to conclude that the People's Bank is bent on breaking excess capacity in a cathartic Schumpeterian purge, or that leadership battles have paralysed the Party? Hard to tell.
All the BRICs need watching. India's industrial output fell 3.5pc in March. The country seems caught in a 1970s stagflation vice. Brazil has softened too, with car sales down 15pc and industrial production contracting in March. The bad loans of the banks have reached 10.3pc, higher than post-Lehman.
The bubble has probably popped already, but hoteliers in Rio are hanging on. The European Parliament has pulled out of the UN's Rio forum on sustainable development in June because the rooms are exorbitant. "We are short the vastly over-vaunted and over-owned BRICs," says hedge fund contrarian Hugh Hendry.
My fear has always been that the credit cycle in the Rising World would blow itself out before the Old World has safely recovered, or reached "escape velocity" to use the term in vogue.
Europe will slide further into 1930s self-destruction until it equips itself with a lender of last resort and takes all risk of EMU sovereign default off the table, though that may come too late. The US has functioning institutions at least but growth is barely above stall speed. Ben Bernanke's "massive fiscal cliff" looms this autumn. The Economic Cycle Research Institute (ECRI) has not yet withdrawn its US recession call.
The BRICS helped save us in 2008-2009. If we now face a global crisis on all fronts – and such an outcome can still be avoided – it will test the mettle of world leaders. Interest rates in the G10 are mostly zero already, and budgets are frighteningly stretched.
Sensing what is coming, Citigroup's chief economist Willem Buiter says global central banks have not yet exhausted their arsenal. They can "and should" crank up quantitative easing (QE), buy everything under the sun, and do "helicopter money drops".
I would go even further. sovereign central banks have the means to defeat any depression thrown at them by launching mass purchases of assets outside the banking system, working through the classic Hawtrey-Cassel quantity of money mechanism until nominal GDP is restored to its trend line.
The problem is not scientific. A world slump is preventable if leaders act with enough panache. The hindrance is that the Euro Tower still haunted by Hayekians, and most G10 citizens – and Telegraph readers from my painful experience – view such notions as Weimar debauchery, or plain Devil worship. Economists cannot command a democratic consent for monetary stimulus any more easily today than in 1932.
One can only pray that helicopter drops do not become necessary in the chilly winter of 2012-2013.
World edges closer to deflationary slump as money contracts in China - Telegraph
China's Economic Slowdown Ripples Through Hong Kong Retail
June 1 (Bloomberg) -- China's slowdown is rippling through Hong Kong, with the city's retail sales rising at the slowest pace since 2009 as mainland visitors cut spending.
Sales rose 11.4 percent in April from a year earlier, the government said yesterday. That's the smallest gain since October 2009, excluding January and February numbers distorted by the Lunar New Year holiday. The median estimate in a Bloomberg poll of economists was for a 16.4 percent increase.
The smaller-than-estimated gain came the same day as jewelry retailer Graff Diamonds Corp. shelved a $1 billion initial public offering in Hong Kong, blaming "consistently declining stock markets." Graff's rivals are feeling the effects, too. Chow Tai Fook Jewellery Co. billionaire Cheng Yu Tung's net worth dropped about 26 percent this year to $15 billion, according to the Bloomberg Billionaires Index.
"Less extravagant spending by mainland shoppers is part of the issue," said Donna Kwok, a Hong Kong-based economist at HSBC Holdings Plc. "Local households are also being more prudent because of increasing turbulence in financial markets."
China's economy is cooling as Premier Wen Jiabao extends a crackdown on speculation in the housing market and Europe's sovereign-debt crisis and austerity measures constrain exports. In Hong Kong, a 15 percent decline in the Hang Seng Index since February has damped confidence and demand as households see the value of their assets dwindle. The benchmark is down 21 percent in the past 12 months.
Luxury Goods
Graff marketed its IPO amid a slowdown in luxury-goods spending in Hong Kong, where Chinese tourists splurge to take advantage of lower tax rates than in the mainland.
Sales of jewelry, watches and valuable gifts in Hong Kong rose an average of 17 percent in the first three months compared with a year earlier, according to data compiled by Bloomberg. That's down from growth of about 37 percent in the last quarter of 2011, the data show.
Hong Kong's lower taxes may help to limit the scale of the slowdown in retail sales growth. Shopping in the Central district today, Wang Wei, 26, of Kaifeng in the Chinese province of Henan, said prices were cheaper than on the mainland and she planned to buy cosmetics and watches after already purchasing jewelry during her five-day visit.
In China, a Purchasing Managers' Index fell to 50.4 in May from 53.3 in April, the nation's statistics bureau and logistics federation said. That was the weakest reading since December and compared with the 52 median forecast in a Bloomberg News survey of 27 economists. A reading above 50 indicates expansion.
A separate PMI released by HSBC Holdings Plc and Markit Economics also declined.
The Chinese economy "is probably cooling faster than originally expected," Chang Jian, a Hong Kong-based economist at Barclays Capital who formerly worked for the World Bank, said before the release. "The only effective way to stabilize growth quickly is through investment."
--With assistance from Joshua Fellman in New York, Justina Lee in Hong Kong and Patrick Chu in Tokyo. Editors: Joshua Fellman, Patrick Chu
To contact the reporter on this story: Paul Panckhurst in Beijing at
ppanckhurst@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at
ppanckhurst@bloomberg.net
Read more:
China's Economic Slowdown Ripples Through Hong Kong Retail
Source: China Quarterly Update (April 2012).
http://www.worldbank.org/content/dam/Worldbank/document/cqu_apri_2012_en.pdf
Iron Ore-China steel touches 7-mth low, demand weak
Iron Ore-China steel touches 7-mth low, demand weak | Reuters
China slowdown worsens amid signs U.S. losing steam
(Reuters) - China's slowdown worsened in May as its factories saw a further deterioration in demand at home and abroad, dealing a new blow to a global economy struggling with a sharp downturn in Europe and a faltering recovery in the United States.
The darkening outlook was underlined by data showing the fourth monthly decline this year in exports from South Korea, the first major economy to report May numbers, as shipments to the United States, Europe and China all fell.
Equities, the euro and growth-linked currencies all fell after Friday's gloomy data, which followed reports on Thursday showing India's growth at its weakest in nine years.
Manufacturing surveys from Europe later are not expected to offer much comfort, while investors' jitters over the key U.S. non-farm payrolls report, due at 8:30 a.m. EDT (1230 GMT), have been rising since a separate report on Thursday showed U.S. private employers created fewer jobs than expected last month.
"I don't think Friday's numbers are going to be any better. It's been a dismal week so far, and we haven't hit bottom," said Jim Ritterbusch, president at oil trading advisory firm Ritterbusch & Associates.
Declines in two gauges of China's manufacturing sector were particularly worrying for investors looking to the world's second biggest economy - the main engine of global growth in recent years - to pick up the slack created by Europe's debt crisis and the sluggish U.S. economy.
China's annual economic growth is expected by analysts to fall to 7.9 percent in the second quarter, the first dip below 8 percent since 2009. That could pile pressure on authorities to take further policy action to support growth.
"What's really worrying is new orders have started to shrink and inventories have started to build up at an unusually fast pace," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.
"Growth in Q2 is likely to slow, probably below 7.5 percent year-on-year. That puts the annual growth target at risk and the risks continue to increase because the external environment is weakening."
OUTPUT WEAKENS
China's official purchasing managers' index - covering China's biggest, mainly state-backed firms - fell more than expected to 50.4 in May, the weakest reading this year and down from April's 13-month high, with output at its lowest since November 2011.
The separate HSBC China manufacturing PMI, tracking smaller private sector firms, retreated to 48.4 from 49.3 in April - its seventh straight month below the 50-mark that demarcates expansion from contraction - with the employment sub-index falling to 48.1, its lowest level since March 2009.
The euro fell to a 23-month low after the data and the Australian dollar, highly sensitive to expectations of Chinese demand for commodities, hit an eight-month low. Japanese shares were heading for a ninth straight week of losses, matching its longest such run in 20 years.
China's yuan was little changed, after suffering its biggest monthly drop on record in May.
A slower growth outlook for China added to concerns facing fellow Asian industrial powerhouse South Korea, which has seen Europe's wrenching debt crisis sap demand for its exports.
Data released on Friday showed that exports fell 0.4 percent in May from a year ago, less than expected in a Reuters poll of economists, as demand in the Middle East and Latin America was offset by sharp falls in the United States, Europe and China.
"Given the prevailing view that the euro zone fiscal crisis won't be solved in the short term, we are concerned that exports to China will remain weak for some time," Deputy Trade Minister Han Jin-hyun said at a briefing after the data was released.
The weak export data prompted investment banks to warn that the South Korean government's forecast of 3.7 percent economic growth this year looked to be overly optimistic.
"Absent a vigorous export recovery, 2012 is shaping up as a year of sub-trend growth," said ING economist Tim Condon.
Taiwan's HSBC May PMI showed a second straight month of slowing expansion, with a reading of 50.5 compared with 51.2 in April.
PAYROLL JITTERS
India's manufacturing sector held up better, with a survey showing factories kept up a steady rate of expansion in May, with fast-rising output evened out by slowing growth of domestic order books.
The HSBC manufacturing PMI, compiled by Markit, eased marginally to 54.8 in May from 54.9 in April. It has stayed above the 50 mark for a little over three years.
While the survey indicated moderate growth in India's dominant manufacturing sector, question marks remain about the underlying weakness in the wider economy.
Official data on Thursday showed India's economy grew 5.3 percent in the quarter to March, the slowest pace in nine years.
Among the data due from Europe later are PMI reports for Italy, France, Germany and the euro zone as a whole, with polls forecasting all to remain deep in contractionary territory.
Economists forecast the U.S. employment report for May to show non-farm payrolls increased 150,000, up from a paltry 115,000 in April.
Investors were alarmed by a report from payrolls processor ADP showing private employers created 133,000 jobs in May, only a slight rise from April's tepid increase of 113,000 and below economists' expectations for a gain of 148,000.
(Reporting by Nick Edwards and Lucy Hornby in Beijing, Se Young Le and Choonsik Yoo ini Seoul, Sumanta Dey in Bangalore, Chikako Mogi in Tokyo, Luke Pachymuthu in Singapore and Lucia Mutikani in Washington; Editing by Jeremy Laurence)
China slowdown worsens amid signs U.S. losing steam | Reuters
Bankruptcy Fears for China's LDK Solar Due to Market Downturn
Chinese photovoltaics leader LDK Solar is headed for bankruptcy according to industry observers within China, due to its immense debt burden and a global downturn in the solar energy market.
China’s Nanfang Zhoumo reported on May 26 that bankruptcy rumors have plagued LDK in recent months, causing investors to seek to divest themselves of shares in the company and regional clients to suspend orders for the company’s products.
One of LDK’s leading investors, Guokai Jinrong, is believed to have sought buyers for its stake in the company since the start of 2012, with management heavily regretting its decision to invest in LDK in 2011, just prior to the solar energy market entering a slump after riding an unprecedented wave of growth.
LDK’s 2011 Q4 financial report, which at the end of April was delayed for several days, indicates that the company is mired in debt of U.S. $6 billion, and that annual interest payments alone amount to between $200 million and $300 million. Total Q4 losses were $589 million, marking the company’s third successive losing quarter.
This is a dramatic turnaround for LDK, which until recently was a leader in the Chinese solar energy sector, and whose 37 year-old chairman Peng Xiaofeng was once feted as an industry wunderkind.
Peng was one of the youngest and wealthiest figures in China’s flourishing solar power sector, and LDK was for a brief period the world’s largest producer of photovoltaic multi-crystalline silicon. LDK was also the first company from Jiangxi province to be listed on a U.S. stock exchange, and the province’s second largest source of tax revenue.
The company’s ambitious high-debt growth model made LDK highly vulnerable to market vicissitudes, however, and the recent industry downturn may have done irreparable damage to the company’s prospects.
Despite the company’s woes, Peng has put on a confident front for both the media and investors, taking the stage earlier this month at a banquet for business partners and customers held in a five-star hotel in Shanghai’s financial district. In an interview with Nanfang Zhoumo, Peng dismissed the concerns of analysts by saying that “they have never seen a great company,” and compared LDK’s troubles to those encountered by Apple’s Steve Jobs a decade ago.
Peng has now pinned LDK’s hopes on the release of a new product — the M2 high-efficiency multi-crystalline silicon wafer, and has informed key lenders that customers are willing to pay a premium of over 10 percent for the new product. Although other industry figures, such as Hu Huifeng, senior deputy general manager of Taiwan’s Neo Solar Power, have come out in support of this claim, analysts believe that the company cannot overcome its current predicament with the release of a single new product, and that given the poor state of the market LDK will be unable to service even the interest payments on its debt.
The flamboyant Peng is certainly no stranger to controversy or crisis. His decision to invest in a 15,000 ton silicon factory was criticized heavily by LDK insiders as well as external observers. Departing senior personnel have complained about management problems within LDK, with many decrying Peng’s headstrong style, lack of prudence, and cavalier attitude toward the opinions of others. The company also faced financial difficulties at the end of 2009, when LDK’s Q3 asset-liability ratio hit 85.15 percent, and its total bank loans reached $1.403 billion. Those problems pale in comparison to the company’s current $6 billion debt burden, however.
Rumors reported by Nanfang Zhoumo also allege that LDK Solar has already filed for bankruptcy protection with the Jiangxi province government, but that the application was refused due to the size of the company and its importance for the provincial economy.
Lead image: Downturn via Shutterstock
Bankruptcy Fears for China's LDK Solar Due to Market Downturn | Renewable Energy News Article
China Medical Likely Headed For Bankruptcy
We think the end is near for China Medical Technologies (CMEDY), and that the gears are in motion for bondholders to file the company for an involuntary bankruptcy, in order to pursue the company's assets in China and try to achieve some sort of limited recovery for creditors. Given the lack of communications from the company since the missed coupon payments beginning in December 2011, bondholders have likely seen that negotiations are unlikely to bear fruit, and are therefore probably preparing a filing. My discussions with bondholders and research analysts indicate a lack of progress as well.
It has been nearly six months since the company first missed its coupon payment on December 15, 2011. It then missed another coupon payment on February 15, 2012. To date, the company has not filed an 6-K explaining why it missed its coupon payments. In fact, the company has not issued any 6-K filings or other relevant notices since its first missed payments. It did not inform investors when its independent director, Lawrence Crum, resigned. It did not inform investors when the stock was halted by NASDAQ, or de-listed to the pink sheets. It did not even appeal NASDAQ's decision to de-list the stock, unlike many other U.S.-listed Chinese companies that have seen their stocks halted.
The company has not filed a quarterly report for the quarter ended March 31, and has not provided any explanation for why it has not done so. Naturally, we're highly skeptical that the company will file a 20-F by its July 31st deadline, or will be able to pass its audit.
Standing ahead of the equity are $413 million face value of convertible notes (see here). When including accrued interest, the face value of notes is worth more than $420 million. If a theoretical restructuring were to occur, the bonds would have to be paid out at par plus accrued and default interest before equity holders would receive a dime. That said, we don't think an actual financial restructuring or debt-for-equity swap is in the works. Rather, bondholders will likely file the company for an involuntary bankruptcy in the Cayman Islands in order to begin attempting to pursue assets in China.
As of yesterday, the company's 6.25% and 4.00% convertible notes traded at 17.2 and 37.2, compared with a face value of 100, according to Bloomberg. These levels imply severe impairment; to put it another way, bondholders expect to receive no more than 17 and 37 cents for every dollar. If bondholders are that significantly impaired, equity holders are unlikely to recover anything. Bond prices have not risen since January, indicating that communications between the company and bondholders have been uneventful and lacking progress. Below is a price chart of the company's bonds:
(click to enlarge)
As we can see, bonds have traded in the 20 to 40 price range since the company's missed coupon payments. At this point, the more time bondholders wait before filing an involuntary bankruptcy, the more difficult it may become to pursue their asset claims in China. We've previously seen Chinese management attempt to transfer assets to related parties to put them out of the reach of foreign claim holders, with companies such as ChinaCast, Puda Coal or Sino-Environment.
When bondholders push China Medical into bankruptcy, we think the stock price will decline dramatically. We believe there is no value left in the equity, and a bankruptcy filing will likely provide the catalyst that will help the market recognize that.
The Company's Irrational Stock Price
CMEDY has inexplicably risen to $4.40 over the past few weeks, which ascribes an absurd market capitalization of $115 million (and an even more absurd $530mm million total debt + market capitalization valuation) to China Medical Technologies. We strongly believe this share price increase is merely one of those odd, irrational occurrences that transpire occasionally in pink sheets-listed equities, and that the fundamentals will soon catch up with the company's stock price. Specifically, the company will be involuntarily forced into bankruptcy, in our opinion, and the stock price will decline dramatically from current levels.
We're not sure whether the recent share price rise is from momentum buyers assigning undue credibility to the SC 13G disclosures of AER Advisers, short-covering, or some other fanciful reason. We don't care. CMEDY is likely to be pushed into involuntary bankruptcy by bondholders, and its stock price is likely to plummet when that happens. We can't fathom any realistic way equity holders will receive any fundamental value for their CMEDY shares in the future.
Disclosure: I am short CMEDY.PK.
Additional disclosure: I am short and own options on CMEDY.PK and stand to realize gains in the event that the price of the stock declines. To the best of my knowledge, all information in this article is accurate and reliable, but I present the information "as is". I will not necessarily update or supplement this article in the future. Following publication, I may transact in securities of the company covered herein.
China Medical Likely Headed For Bankruptcy - Seeking Alpha
WEAK AGAIN: China's HSBC PMI Falls To 48.4, 'Employment Down At Fastest Rate In 38 Months
UPDATE
Another weak number out of China.
The HSBC PMI number fell to 48.4, down from 49.3 in April.
The number also fell short of the Flash/preliminary number of 48.7.
From Markit:
May data signalled a further modest deterioration in manufacturing sector operating conditions, largely reflective of a seventh successive month-on-month decline in overall new business. Job shedding persisted as a result, with the latest reduction in staff numbers the sharpest in more than three years. A renewed fall in purchasing activity was signalled by May’s survey, which in turn contributed to an improvement in vendor performance for the first time since July 2009. Meanwhile, average input costs fell at a solid rate, and selling prices decreased for the sixth time in the past seven months.
Key points:
New order and output indices post sub-50 readings
Employment down at fastest rate in 38 months
Input prices fall for first time since January
Click here for LIVE coverage of all of the global PMI reports >
ORIGINAL
Don't forget, China produces two manufacturing PMI numbers.
At 10:30 PM EST, we get HSBC's May PMI number.
Earlier this month, the Flash (or preliminary) HSBC PMI number came in at 48.7.
Earlier this evening, we got the official May PMI number, which fell to 50.4 from 53.3 last month. This was much worse than the 52 economists were expecting.
Markets instantly sold off on the news.
Read more:
China HSBC PMI - Business Insider
Read more:
China HSBC PMI - Business Insider
China Jan-Mar 2012 germanium and zirconium dioxide exports down 63.84%
China Jan-Mar 2012 germanium and zirconium dioxide exports down 63.84% - Metal-Pages
China - Sharply-slowing textile exports worry industry
New figures have showed that China's textile and garment exports slowed drastically in the first fourth months of this year as domestic companies worry about decreases in their market share overseas and inadequate support from consumption at home.
The export value of textile and garments in the January-April period stood at $71 billion, just 1.07 percent higher than a year ago, according to data released on Thursday by the China National Textile and Apparel Council (CNTAC).
The growth rate witnessed a sharp decline from the 27.05-percent rise registered in the first fourth months in 2011, judging by customs data.
Breaking the market down, exports of textile products grew only 0.15 percent to $30.73 billion, while garment exports increased 1.77 percent to $40.27 billion, the CNTAC data showed.
"The slowing exports were directly caused by higher domestic cotton prices," said CNTAC spokesman Sun Huaibin. The domestic price of 328-type cotton stood at 18,853 yuan ($2,974) per ton as of May 25, 5,460 yuan higher than its price in international markets.
The continuing price gap has weakened the competence of the domestic textile industry, Sun said, adding the nation's textile exports will face an even worse situation if the gap fails to narrow in future.
The spokesman said the disparity has also led to reduced market shares of Chinese textile and garment exports.
Along with rising labor costs at home in recent years, Chinese textile and garment products in major markets such as the United States and Japan fell to 35.58 percent and 72.03 percent, respectively, in the first quarter of 2012, down 4.55 and 2.92 percentage points year on year, Sun noted.
Meanwhile, according to the CNTAC data, China's textile exports to its third-largest trading partner, the Association of Southeast Asian Nations, grew only 2.69 percent in the January-April period, representing a drastic fall of 59.66 percentage points year on year.
The data also showed textile and garment imports by the United States, the EU and Japan dropped 6.55 percent in the first quarter, which added to the worries of Zhong Daguang, general manager of a garment company based in southern China's Guangdong province, who said his company has been getting fewer orders since the start of the year.
Li Jincai, president of the China Textile Construction and Planning Institute, said obstacles in foreign trade and lackluster domestic consumption are both having an impact on the status of the country's textile and garment industry, which supplied 32.71 percent of total exports worldwide in 2010.
At home, the situation is no less worrying. The CNTAC data showed the sales revenues of 36,700 surveyed textile companies hit 1,677 billion yuan in the first four months, up 13.11 percent; however, the growth rate plunged 17.43 percentage points year on year.
Slowing growth in both exports and domestic sales revenues slashed the first-quarter profits of the surveyed companies to 53.7 billion yuan, down 1.77 percent year on year, the data suggested.
Source: China Daily .
China - Sharply-slowing Textile Exports Worry Industry
China Industrial Companies’ Profits Decline 2.2% In April
Chinese industrial companies’ profits fell in April, a government report showed, as the nation’s slowing economy curbed demand.
Earnings declined 2.2 percent from a year earlier to 407.6 billion yuan ($64.2 billion), the National Bureau of Statistics said on its website yesterday. That compared with a 4.5 percent gain in March.
The deceleration in corporate profit growth underscores concerns that the slowdown in the world’s second-biggest economy is deepening. China’s State Council said on May 23 that downside risks to growth are increasing and the government will intensify “fine-tuning” policies as needed, signaling it may take more aggressive steps to support the nation’s expansion.
“China’s economy is slowing down, so profit growth will also be slower this year,” Lu Zhengwei, Shanghai-based chief economist at Industrial Bank Co., said before the release. “The pace may pick up a bit in coming months if the economy rebounds after policy easing filters through.”
Industrial profit growth for the full year is likely to be in a range of 10 percent to 20 percent, compared with 25.4 percent in 2011, Lu said.
Property Curbs
China’s economy may expand 7.9 percent this quarter from a year earlier, the least since 2009, a Bloomberg survey this month showed, as Europe’s debt crisis crimps exports and property curbs cool domestic demand. That’s down from an 8.1 percent pace in the first three months that was the fifth quarterly deceleration.
The government “must proactively take policies and measures to expand demand and to create a favorable policy environment for stable and relatively fast economic growth,” according to a government statement summarizing the State Council’s May 23 meeting.
A preliminary reading of HSBC’s China purchasing managers’ index released May 24 indicated manufacturing may contract for a seventh month, adding to signs that growth is weakening. The report followed data that showed industrial production in April rose the least since 2009 and new lending was the lowest this year.
Premier Wen Jiabao, while visiting a remote region in Hunan province, called for extra government support for the nation’s poorest areas, the official Xinhua News Agency reported yesterday. The country should speed up important infrastructure projects and improve health-care services in impoverished regions, Wen was cited as saying.
Steelmaker Losses
Industrial profit for the first four months fell 1.6 percent from a year earlier to 1.45 trillion yuan, yesterday’s statistics bureau report showed. That compared with a 1.3 percent drop in the first quarter. Sales in the period rose 12.7 percent to 27 trillion yuan, according to the data.
Baoshan Iron & Steel Co. (600019), which supplies half of China’s automobile steel, reported a larger-than-estimated 60 percent drop in first-quarter profit on slowing demand, according to a statement filed to the Shanghai stock exchange on April 27. Steelmakers in China, the world’s biggest producer, had combined losses of more than 1 billion yuan in the first quarter, China Iron and Steel Association data show.
China’s industrial-profit data cover companies in 41 industries. Starting last year, the statistics bureau raised the minimum annual sales for businesses included in the survey to 20 million yuan from 5 million yuan.
To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at
lzheng32@bloomberg.net
China Industrial Companies
