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Are We Watching China's Hard Landing?
by Tracey RyniecJune 07, 2012 | Comments : 11 Recommended this article: (0)
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Overnight, China's Central Bank cut its 1-year benchmark lending rate and its 1-year deposit rate by 25 bps each. The 1-year lending rate now stands at 6.31% and the 1 year deposit rate at 3.25%.
Why is this such a big deal?
China has not cut rates since the height of the financial crisis, in December 2008.
It has, however, been cutting reserve ratios for the banks in 2012. This was done to encourage the big banks to lend. It was believed that another cut to those ratios would be coming soon but instead the Central Bank went full out with the interest rate cuts.
Some recent signs of slowing include:
1. 30 Panamax or Capesize vessels carrying coal are apparently floating off of China's coast as traders have been unable to resell them to end-users.
2. Coal stockpiles at China's biggest coal port, Qinhuangdao port, are up 40% year over year to 8.7 million metric tons.
3. Iron ore inventories are up 10% nationwide from the same time last year.
4. Auto inventories surged to more than 60 days in May, up from 45 days at the end of April. Price cutting usually occurs when inventory exceeds 45 days.
5. Demand for bank loans from the Big Four state-owned banks declined in May to 234 billion yuan from 263 billion.
6. Macau gambling revenue rose just 7.3% in May, the slowest pace of growth since July 2009.
7. HSBC PMI for May fell to 48.4 from 49.3 in April. It has been under 50, which signals contraction, since October 2011. HSBC is not the "official" PMI but it surveys smaller companies and more of those tend to be private, instead of government owned. "Official" PMI fell to 50.4 from 53.3 in April which is just above contraction.
Many of the major North American industrial manufacturers, who saw the slowdown happening 6 months ago in their Chinese sales data, predicted in January that there would be a Chinese rebound in the second half of 2012.
But it's now June. The second half of the year is looming.
Does the sudden interest rate cut signal that China's Central Bank is now worried about a hard landing?
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