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[BEIJING] The earliest indicators for China's economy in June signal that the manufacturing sector may be poised to decelerate, while other challenges loom in the second half of this year.
Small- and medium-sized enterprises showed the lowest level of confidence in 16 months, a gauge of manufacturing drawn from satellite imagery slumped, and conditions in the steel business remained lackluster. There's some good news though: sales-manager sentiment remains positive. Output in the world's second-largest economy has softened in the second quarter after a strong start to the year, with investment slowing, some credit becoming tighter and evidence emerging that administrative curbs on the property market are starting to bite. If the slowdown worsens in the coming months, the government's resolve to curb risk in the banking sector could be tested during a period of leadership transition in Beijing.
Here's what June's earliest indicators show: Smaller Businesses Standard Chartered Plc's Small and Medium Enterprise Confidence Index slumped to a 16-month low of 54.7, signaling smaller companies are finding it harder to obtain credit as regulators move to damp financial risks. A sub-gauge of lending fell below 50, signaling deterioration, for the first time on record, bank economists Kelvin Lau and Hunter Chan wrote in a note.
That indicates banks are more hesitant to lend to smaller companies, leaving them in line to bear the brunt of the tightening, they wrote. "Although the central bank will likely provide sufficient liquidity to avoid a liquidity crunch, banks may still prefer lending to bigger rather than smaller companies amid tighter liquidity conditions," they said.
The outlook from orbit also looks weaker. Manufacturing signaled deterioration for the first time since August, according to the China Satellite Manufacturing Index, which fell to 49.6.
The reading published by San Francisco-based SpaceKnow Inc. uses commercial satellite imagery to monitor activity across thousands of industrial sites. Readings above 50 signal improving conditions, while those below indicate deterioration.
Tepid Steel The S&P Global Platts China Steel Sentiment Index remained at a lackluster level - 38.12 out of 100 points. The gauge is based on a survey of about 75 to 90 China-based market participants including traders and steel mills.
"Market participants do not expect any great improvement over the coming month," Paul Bartholomew, a senior managing editor at S&P Global Platts in Melbourne, wrote in a release. "Confidence in the export market has evaporated after two stronger months, as overseas customers are wary about buying when the price direction is so unclear." Sales managers are more upbeat. A survey-based sentiment gauge climbed to a 20-month high of 52.5, according to London-based research firm World Economics Ltd.
"We will see a small uplift overall, nothing dramatic," Chief Executive Ed Jones wrote in an email. "If the upwardly growing trends in market growth and sales growth persist then the outlook is positive."