China PMI Below 50 Highlights Barriers to Recovery in 2012

China’s official PMI of 49.2 in August, down from 50.1 in July, may signify that a second-half recovery remains distant and that the country faces systemic economic problems, including substantial industrial overcapacity. This may make additional policy-rate cuts and reserve-ratio reductions inadequate for stoking strong growth.

While many analysts are calling for additional rate cuts to jump-start a recovery, the impact would likely be minimal. Even if financing becomes cheaper, Chinese manufacturers may not need more loans, with lackluster demand for output.

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