Yingli Green Energy Hold. Co. Ltd. (ADR) (YGE), HANG SENG INDEX (HSI) – Growth Investors Take Heed: China’s Slump is Getting Worse

Hardly a week goes by in China without economic trouble rearing its head these days. Chinese manufacturing was the victim this week, with the country’s purchasing managers’ index falling into contraction territory, according to a study from HSBC and Markit. The reading hit the HANG SENG INDEX (INDEXHANGSENG:HSI) hard, but the index recovered well, to end the week up 1.5%. That’s not been enough to counter the index’s poor results in 2013, however: Year to date, the HANG SENG INDEX (INDEXHANGSENG:HSI)’s fallen more than 12%, outpacing most other world indices in the race to the bottom.

Is China still a safe bet for investors looking for growth prospects?

Manufacturing slumps into contraction territory
Manufacturing is only part of China’s greater slowdown. Exports have been hit hard by the cash outflow from the country in recent times, and the problem has only worsened lately. The Fung Group’s Business Intelligence Center said this week that a measure of export orders from China’s PMI fell to a reading of 47.7 — more than two percentage points into contraction territory, and the lowest mark since February.

That’s not good for an economy reliant on exports for growth. Already, rising costs in manufacturing and labor have hurt China’s export sector, as businesses leave for cheaper pastures. Combined with the country’s slowdown in infrastructure spending, the sector’s future for businesses and growth as a whole look bleak.

China’s at least taken a step forward in resolving its ongoing trade dispute with Europe, one of the nation’s largest export customers. The European Union earlier accused China of dumping cheap solar panels to flood the European market, and while the EU is still on pace to impose punitive restrictions on Chinese solar imports come August, the two governments are reportedly making progress in easing tensions.

It’s a sign that relief could be coming for tense investors in Chinese solar firms, one that sent shares of major solar companies surging earlier in the week. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE)‘s stock surged by more than 13% on Friday, part of an 18% gain for the week. With more than 50% of total Chinese solar exports going to Europe, Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) and other solar rivals are reliant on the EU’s willingness to deal with Beijing in order to avoid costly tariffs.