China’s manufacture expanded for the first time this year with a PMI of 50.7 in June, up from 49.8 in May. Exports also improved, arguably supported by the Eurozone recovery. China’s economy expanded by 7.5% in Q2 from 7.4% in Q1 2014. However, the Chinese economy is still under pressure:

• Lending at 200% of GDP and a potential housing bubble burst could cause local government bankruptcy and lead to a banking crisis;
• Recent “mini” stimuli package seem to have stabilised economic growth, however, excessive manufacturing capacity and weak domestic demand is likely to pose long-term challenges;
• Inflation decreased to 2.3% in June, compared to 2.5% in May;
• 2013 crude steel production in excess of consumption by 104.2 million tonnes;
• Oil consumption fell by 0.429 million b/d in May (m-o-m), but remains 2.7% higher y-o-y;
• Despite being 0.27 million b/d higher y-o-y, crude import fell by 0.49 million b/d in June from a record 6.17 million b/d in May;
• Expansion of China’s refinery capacity is slowing down due to lower oil demand and fear of overcapacity.

Despite a monthly oil consumption decline, a y-o-y increase in oil product consumption indicates improvements in the manufacturing sector.