New data from the HSBC Flash Purchasing Managers Index confirms that factory orders in China are slowing, as it dropped from Aprils final reading of 49.3 to May's final reading of 48.7.
This is the seventh month in a row that the index has been under 50, which means the economy continues to contract.
Hopes that China's economy will rebound in the second half appear to be dashed, as the global economic slowdown continues.
HSBC's chief economist Qu Hongbin, said this, "Policymakers have been and will step up easing efforts to stabilize growth. As long as the easing measures filter through, China will secure a soft landing in the coming quarters."
This not only points to a weakening Chinese economy, but other economies around the world as well, as that's where the weakness lies, with orders plunging from overseas customers. That means those businesses don't see strong demand in the near future.
According to Markit Economics Research,, for new export orders, the sub-index fell from 50.2 in April to 47.8 in May, bringing it down to close to March's final reading of 47.7.
Other weak economic indicators in China for April resulted in the Chinese central bank cutting the amount of cash banks must hold in reserve in order to provide more liquidity in the economy.
That hasn't worked so far, as there is more than enough liquidity, but not much demand for capital. That has resulted in few loans.
Unfortunately, the failed Keynesian idea of spending more money by the government in an attempt to boost growth is being considered by Beijing, which is now going to go further into debt by financing infrastructure projects, which of course means an attempt to artificially prop up the economy in hopes the private sector will rebound.
You would think China would look to the fiasco in Europe and the extraordinary debt in the U.S. as examples of what not to do. But they are ignoring all that, apparently thinking they won't face similar issues by participating in the same practices. They're wrong!
This is also the outlook of new socialist French President Francois Hollande, who wants to stimulate the French economy as well, by focusing on "growth" rather than fiscal discipline.
To think of this a novel idea is of course ridiculous. Some even call it 'game-changing.' What's changing the game about governments spending themselves into failure. What doesn't Hollande understand about the sovereign debt crisis in the region?
He's a socialist of course, so he's even more blinded by the idea of government as savior than most. Yet encouraging more spending will lead Europe quickly closer to the economic precipice than they are now.
Most of Hollandes idea is centered around eurobonds, which is pooled European debt. What it would do is destroy the free markets once and for all, as the market wouldn't be allowed to punish poorly run countries, but rather the cost of money would be the same no matter what the credit rating or outlook of the country is.
In other words, it would take even more incentive away for countries to to get their financial houses in order, and they would attempt to spend themselves out of the dilemna. This is another spin on failing Keynesianism, and will itself fail over time.
Out of control spending and political promises in Italy and Spain has resulted in the countries having to pay close to five times as much interest as Germany does when issuing national bonds.
To socialists like Hollande this is an outrage. He doesn't like the idea of markets forcing discipline on governments, and wants to eliminate that altogether.
It will be a disaster if it is ultimately agreed to, as the last bit of restaint would be taken off of the irresponsible governments in the region, and they would be able to be able to just about spend with impunity, as the cost of failed policies couldn't be interfered with by the market through higher interest rates.
That means the countries in Europe would all be viewed the same in regard to eurobonds, even though they would widely differ in financial health.
Chancellor Angela Merkel rightly opposes this, and would be irresponsible to the German people if she were to agree to it. Her concerns are rightly that the German people would have to underwrite the weaker and vastly irresponsible nations of the eurozone in perpetuity. She is right.
If she does agree to it, it will show that the obsessive idea of keeping the eurozone and European Union in tact is more important than the people of the nations represented; especially those that have their financial houses in relatively healthy order.
Going back to China, it needs to learn from this fiasco if they're going to avoid the same fate in the future.
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