HSBC China PMI fell from 49,5 in January to 48.5 in February, in line with expectations. First contraction in both new orders and output since July 2013. The pace of job cuts was the fastest since March 2009. The decline was broad-based with all the sub-indices slowing. Economists think markets should interpret the PMI data with some caution because of the impact of the Lunar New Year holiday but the signs are become clear that the risks to GDP growth are tilting to the downside.


Of course, part of the slowdown is being driven by Beijing’s efforts to rebalance the economy away from exports and investment-led growth to domestic demand driven growth. The result, Chinese GDP growth is falling.

Topping the list of Global Macro concerns, China/EM credit. Fear of asset bubbles from easy monetary policy and secular stagnation or prolonged low growth also garnered focus.

Global Macro Risk

Earlier this year Shen Danyang, spokesman of China’s Ministry of Commerce said in the briefing that tepid global economic growth, rising costs and intensifying competition from other emerging economies are expected to weigh on the country’s foreign trade conditions this year. He also said that the government will continue to take supportive measures for exporters to help them weather the difficulties, but didn’t provide any details on possible action.

The yuan volatility we have seen lately is a signal a change in China’s exchange rate policy. The development seen below has been hurting China’s manufacturing competitiveness.

“Recent depreciation of CNY against USD points to rise of two-way risks of currency. Capital inflows had surged in recent months, driven by positive onshore and offshore interest rate carry against a stable and strong exchange rate. Perception of increased downside FX risks may help stem some of the inflows and curb FX borrowing by onshore Corporates.” (Goldman Sachs)


China (1)

An overview of the countries with the largest exposure to China.

Exposure to China


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