China PMI Drops to 50.1 in June

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It’s official. The manufacturing sector of China has reached a dead halt. June purchasing managers index (PMI) was 50.1%, just a tad above the point of contraction. The number is inaccurate enough the contraction already may have begun. The 50.1 was from official data issued by the government. Europe-based Markit reported that its figure fell to 48.2 from 49.2 in May. The second number is co-published with HSBC.

It is not entirely clear why the numbers have dropped so far and so fast. It may be that inventories for the manufactured goods China experts overseas are relatively full. It may be that the recession in the European Union and trouble with the U.S. economy are the primary causes. Either way, the manufacturing problem could cause the general gross domestic product (GDP) of the People’s Republic to fall to 6%, a number some economists already have estimated. And a figure that low would be unprecedented in recent years.

According to Reuters:

“The weak PMI reinforces our view that there is 30 percent chance GDP may drop below 7 percent in Q3 or Q4,” said Zhiwei Zhang, chief China economist of Nomura in Hong Kong.

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