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Wednesday, July 1, 2009

Chinese Manufacturing Shows Marginal Gains

In some upbeat news from China, the Chinese Federation of Logistics and Purchasing (CFLP) index and the CLSA manufacturing index both demonstrated marginal gains in June. The CFLP increased to 53.2 from 53.1 the previous month, while the CLSA index edged up to 51.8 from 51.2. This performance has been driven by China’s extensive stimulus package leading to higher lending and government spending. Possibly more interesting than the headline number was the CLSA index’s export order sub-component, which indicated a marginal expansion with a reading of 50.9 compared to 49.2 the previous month. But, it is important to keep in mind that this number was calculated from a very small base given recent historical declines. Overall, these numbers alone are unlikely to have much of an impact on the dry bulk sector. But, will reinforce the view of a gradual Chinese recovery. It is important to keep in mind that these gains are not yet sustainable without China’s massive fiscal stimulus package. Additionally, extensive loan growth could cause problems in the future for China as the level of non-performing loans is generally expected to rise.

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