Well-known Chinese financial site Caixin recently released its official Chinese Manufacturing PMI index number for June. It reflected the sharpest deterioration in operating conditions in four months amid economic weakness at home and abroad, with the index at 48.6. Caixin PMI was formerly known as HSBC PMI, which was a well-respected economic indicator monitored globally by financial institutions. The PMI report showed that total new orders decreased in June, driven by the seventh straight monthly decline in new export sales. At the same time, companies continued to reduce staffing for the 32nd successive month. Overall, economic conditions in the second quarter were considerably weaker than in the first quarter. Caixin expressed its belief that the government must strengthen its proactive fiscal policy while continuing to follow prudent monetary policy. PMI (Purchasing Managers Index) is an indicator of financial activity reflecting purchasing managers’ acquisition of goods and services. A PMI number below 50 typically reflects a decline. 

Well-known Chinese news site Sina recently reported that, based on a Financial Times analysis, no Chinese rating agency recognizes the credit risks that Chinese domestic corporate debts have caused. According to data that the IMF has published, China has around US$1.3 trillion worth of corporate debt that can turn bad. However, when checking with the top 10 Chinese rating agencies, the Chinese companies were all considered “healthy.” Based on the current ratings, nearly all of the US$2 trillion domestic corporate debt is considered safe. However, in the first six months of this year, the number of corporate debt default cases skyrocketed to three times the number for the entire previous year. The Chinese ratings are also dramatically different from ratings that the well-respected international agencies such as Standard and Poor’s, Moody’s, and Fitch have given. Some of the Chinese AAA-rated corporate bonds were rated “garbage” outside of China. Critics suggested that the Chinese rating agencies are under the pressure from both the government and the large domestic companies. Some Chinese government officials explained that the overseas ratings did not “properly” consider the government support those Chinese companies enjoy.

Source: Sina, July 1, 2016

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