China's Economic Bubble Is Bursting

Chriss Street / American Thinker

The highly credible HSBC/Markit Purchasing Managers’ Index (PMI) of economic demand in China reported that demand in China’s factories fell for a second month in a row and hit a seven-month low. Markit Research also reported that production turned negative for the first time in seven months and hiring expectations fell to a new five-year low. Although the Chinese government continues to produce an array of rosy economic statistics each month, China’s industrial competitiveness is fading fast. Coupling the production contraction with banking problems and a fall in the HSBC/Markit Employment Index to a five-year low, it appears that China’s economic bubble is bursting.

Markit Research compiles “flash” indicators each month for demand and operating conditions in China’s manufacturing sector. The report is based on surveys responses from executives inside approximately 85%-90% of China’s most important factories. A Markit flash score above 50 means that activity is expanding and a score below 50 means that activity is contracting. Although the final reports are not published for another two weeks, the Markit flash reports seldom differ from the final reports.

The Chinese Lunar New Year festival began this year on January 31 and most workers tend to go on vacation for two weeks back to their family homes. Consequently, economic activity during the Lunar holidays is an excellent indicator of the pace of domestic consumer demand. The purchasing managers’ index falling from a weak 49.5 in January to a seven-month low of 48.3 in February is a strong indication the accelerating contraction in demand is being driven by weak domestic consumption.

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