China's Manufacturing Expands A Fourth Month

Remember the article by Ambrose Evans-Pritchard of Telegraph on Monday, saying China is having a credit bubble and not a real economic recovery?

No, says Bloomberg, it is the real growth and real recovery, and it's only beginning.

China Manufacturing Expands a Fourth Month, PMI Shows (7/1/09 Bloomberg)

"China’s manufacturing expanded for a fourth month as a 4 trillion yuan ($585 billion) stimulus plan and record bank lending revive the world’s third-largest economy.

"The official Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion. "

"China’s economy may keep improving in the third and fourth quarters, enabling the nation to meet its 8 percent economic growth target for this year, central bank Governor Zhou Xiaochuan said this week. Export orders expanded for a second month, adding to signs that the global economy may be over the worst of its slump."

They have the 8 percent growth target to meet - after all, it is still a Communist country. But wait, "export orders"?? To where? Who is buying?

In case anyone doubts the official government statistics in China, we have analysts from Bank of America and J.P. Morgan Chase who vouch for the validity of the numbers:

"“China’s recovery is gathering further momentum,” said Lu Ting, an economist with Bank of America Merrill Lynch in Hong Kong. “It has been recovering faster than the market had expected.”"

"“China’s stimulus program is having a demonstrable effect on domestic spending, which has resulted in increased manufacturing activity,” said Jing Ulrich, Hong Kong- based chairwoman of China equities at JPMorgan Chase & Co."

Domestic spending? Increased manufacturing activity? It feels like we're reading about two different countries: one according to Telegraph, which is blowing a credit bubble resulting in speculation in stock and commodity markets, the other according to Bloomberg, which looks set to pull out of recession by producing goods.

Both can't be true, can it? Remember Telegraph's Evans-Pritchard:

"China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.

"Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump."

I tend to side with Telegraph that it is a destructive bubble that China is having. But with their economy and their stock markets going nowhere fast, many Americans and many more Japanese may be wishing they too had a bubble, any bubble - ah the good old days when every asset class kept going up in price until one day the sky fell ....

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