By Profit Confidential<\/p>\n
The Chinese economy<\/a>, the second-biggest economy in the world, is witnessing a significant decline in manufacturing. The HSBC China<\/a> Manufacturing Purchasing Managers\u2019 Index (PMI), compiled by financial information company Markit, fell to 47.7 in July from 48.2 in June. (Source: Markit, August 1, 2013.) Remember: any reading below 50 represents contraction in the manufacturing sector.<\/p>\n In July, the manufacturers in China reported a contraction in new orders\u2014the sharpest drop in eleven months.<\/p>\n Manufacturing accounts for a very significant portion of the Chinese economy<\/a>. According to the World Bank, it accounted for 30% of China\u2019s gross domestic product (GDP) in 2011. (Source: World Bank web site, last accessed August 1, 2013.)<\/p>\n What\u2019s happening with China\u2019s manufacturing leads me to believe that the estimates of growth we have seen for the Chinese economy this year and next are just too optimistic.<\/p>\n The Chinese economy grew at an annual pace of 7.5% in the second quarter of this year. It wouldn\u2019t surprise me if this growth rate declined further. And let\u2019s not forget that this growth rate of 7.5% for the Chinese economy is notably lower than its historical average of 10%.<\/p>\n I keep pounding this on the table: U.S. stock markets will suffer as the Chinese economy contracts.<\/p>\n Here\u2019s what the CEO of The Coca-Cola Company (NYSE\/KO), Muhtar Kent, said on the company\u2019s second-quarter earnings conference call: \u201cAs is well publicized, China\u2019s economy has been slowing and this is now being felt in consumer spending<\/a>. [Our] China first half retail sales were the slowest in 10 years\u2026 As a result, our volume performance in China remained soft and was even for the quarter, cycling 7% growth from the prior year.\u201d<\/p>\n This is just one example of a large American company seeing softer demand because of the economic slowdown in the Chinese economy. It\u2019s a major risk that shouldn\u2019t go unnoticed.<\/p>\n Still worried about the economy? Become a charter member of DAILY PROFITS
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