Chinese Manufacturing Increase
By www.ProfitableInvestingTips.com
Stocks around the world responded favorably
to the announcement of the first Chinese manufacturing
increase in more than a year. A Chinese manufacturing
increase may tell us that prospects for investment
in China are positive. On the other hand,
at least part of a Chinese manufacturing increase
will come from sales by this export driven
economy. Thus a Chinese manufacturing increase
tells us that Chinese manufacturers are filling
orders from customers around the globe. Since
half a year ago when we wrote about a weak
Chinese manufacturing report, the European
economy has worsened while Germany and the
United States are coming slowly but surely
back to recovery. The report, issued by HSBC,
is a purchasing manager's index much like
the ISM report in the USA. An index below
50 implies contraction of the sector while
an index above fifty indicates expansion.
The Chinese index rose from 49.5 to 50.3 in
the last month.
Stimulus in China
China has used economic stimulus by the government
to support its lagging manufacturing sector
over the last few years since the onset of
the 2008 recession. Interest rates have been
kept low and the government has poured money
into infrastructure projects. Chinese economists
predict a rise in economic growth into the
eight percent range. An optimistic read of
the situation is that China specifically and
Asia as a whole are in the recovery phase
of a traditional recession. If fundamental
analysis of the Chinese manufacturing increase
is consistent with a routine economic cycle
it could well be time to buy Chinese manufacturing
stocks. As with the USA and Europe, investors
are well advised to watch what happens as
government stimulus tapers off and the Chinese
manufacturing sector must grow on its own.
Bull or Bear on Chinese Stocks
Despite a generally favorable response to
the announced Chinese manufacturing increase,
the composite index of stocks fell on the
Shanghai market. This may be a matter of buying
on anticipation and selling on the news. Over
the long term a major issue for China is the
ability of the world to buy more and more
Chinese products. Europe had been China's
number one customer. Now, as the Euro Zone
lingers in debt and recession Chinese industry
needs to look elsewhere for customers. Raw
materials are always a concern for a growing
industrialized economy. As China extends it
political as well as its economic clout, it
hopes to secure customer bases as well as
access to raw materials. However, as the USA
found out over the years, being perceived
as the country with all of the power and money
puts a nation in a different light. The political
as well as economic cost of buying favors
and getting access to raw materials as well
as markets can become costly and become a
burden on those at home. If you are investing
in foreign stocks, Chinese stocks certainly
deserve a look. But, remember Japan at the
end of the 1980′s. The nation seemed to
be set to take over the world. Then a set
of handshake, good old boy, loans was disclosed
and the Japanese economy went flat line for
over a decade. China is still not a transparent
society. The apparent Chinese manufacturing
increase sounds good but just how good is
the data? Investors in China are advised to
constantly do their homework and check their
results.
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investments and investing, visit www.ProfitableInvestingTips.com.
