News for Credit Professionals       NACM-SE

Fitch Knocks China for Differences Between State, Private PMI

Although lackluster manufacturing statistics out of China and its top trade partners isn’t necessarily reason for alarm, as noted in last week’s eNews by economists Chris Kuehl, PhD and Ken Goldstein; market watchers and credit analysts remained somewhat puzzled at often contradictory data coming from the Asian powerhouse.  
While the Chinese government’s official Purchasing Managers Index was listed at a 13-month high in April at 53.3, it contradicts indexes, including one conducted independently by HSBC that finds the manufacturing PMI closer to 49.3 for the same period. It is the ninth straight decline noted by HSBC of private Chinese companies, and the level falls below the proverbial Mendoza line dividing growth and contraction. Fitch Ratings pointed out this very problem, and the issues/uncertainty it creates for investors and the credit profession, this week.
The U.S.-based ratings agency believes the divide can be chalked up to private sector companies experiencing a significant disadvantage in the area of credit availability when compared to its private sector competitors. Fitch noted the ‘official’ [government] PMI figure reflects positive returns from large state-owned enterprises in particular, whereas the HSBC index is almost exclusively comprised of information from private sector entities.
“The divergence of the indicators may reflect differential terms of access to credit, with the contracting HSBC index representing the tighter credit conditions for private companies, whereas the expanding official index reflects China’s large state-owned entities, which enjoy support for growth and expansion and have easier access to funding,” Fitch said in its statement. “This is perhaps not surprising from a credit perspective when considering a centrally directed economy trying to integrate a growing capitalist business sector.”
While perhaps not a “surprise,” the continued uncertainty continues to be a source of frustration among investors and credit-granters.
Brian Shappell, CBA, NACM staff writer