Yuan Little Moved as China Manufacturing PMI Drops Sharply

China is the world’s
second-largest economy in the world with an annual GDP of more than $11
trillion. This is an impressive number for a country whose GDP was just $1
trillion in 2000. The country’s growth has been attributed to its robust
manufacturing sector and better western education that has led to the growth of
the technology sector. The country has also embarked on large construction
projects that have helped to boost demand. In fact, the country has built the
biggest rail network in the world. It has also created hundreds of ghost
cities.

Some of the things that have
helped the country do well are high tariffs for imports, forced technology
transfers, and other protectionist policies. These policies are now being
discussed in the talks between the country and US.

For the past few years, investors
have continued to worry about the Chinese growth. This is after the economy
grew by 6.5% in the fourth quarter. This was a much lower growth rate than
investors were expecting. Investors are also concerned about Chinese debt,
which currently stands at $5.2 trillion. This is about 47% of the total GDP.
However, critics worry about the hidden debt that is held by local
municipalities and state-owned firms. Analysts believe that this debt could be
as much as more than $20 billion.

Of key concern right now is the
slowdown in the manufacturing sector. Earlier today, data from the country
showed that the manufacturing PMI declined to 49.2. This was a lower number
than the 49.5 that traders were expecting. It was also the third month of
straight declines. A PMI reading of below 50 is usually a potential sign of
contraction of the economy.

The problems were also in the
non-manufacturing sector. The sector’s PMI for February declined to 54.3. This
was lower than the expected 54.5. This was also lower than the previous month’s
54.7.

As the talks between China and US
have advanced, the US dollar has weakened sharply against the yuan. The USD/CNH
has declined by almost three percent. On the chart below, the RSI has moved up
to more than 50 while the MACD has remained relatively neutral. The pair will
likely remain along these levels as traders watch the outcome of the US-China
talks.

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