Chinese Manufacturing Slowdown Reflects Cash Squeeze

China’s manufacturing expanded at its slowest pace for four months in June as a cash squeeze in the banking system reduced the flow of credit to companies.

The National Bureau of Statistics of China and China Federation of Logistics and Purchasing (CFLP) reported that the Purchasing Managers’ Index (PMI) was at 50.1 in June from May’s 50.8. Readings above 50 signal expansion.

Weaker gains in manufacturing add to odds that China’s premier, Li Keqiang, will become the first to miss an annual growth target since the Asian financial crisis in 1998. Expansion probably slowed in Q213 for a second straight quarter after export growth fell sharply and Li reined in record credit expansion to contain shadow banking risks.

Chinese president Xi Jinping has said officials that should not be judged solely on their record in boosting gross domestic product (GDP), according to a 29 June report by the Xinhua News Agency, adding to signals that policymakers are prepared to tolerate slower economic expansion.

The Communist Party should instead place more importance on achievements in improving people’s livelihood, social development and environmental quality, Xinhua said.

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