China's Lost It

HSBC's purchasing managers index (PMI) came in at 49.5, analysts expected a read of 49.8.

That's problematic, as any reading below 50 indicates that China's manufacturing sector is contracting. This is the worst reading the country has had in seven months.

If that does happen it's the continuation of a trend. Last month HSBC's read came in around 50.

The question is, ultimately, will China ease and back away from its commitment not to juice its economy with stimulus - to let it rebalance naturally on the purchasing power of its own people?

But that isn't happening fast enough, and the economy is slowing much, much faster. China has asked banks to boost lending already, but analysts don't think that's enough. What China really needs is a full scale restructuring of its weak debt-laden corporate sector.

If that happens, it will take pressue off China's banks. They're the ones holding all this debt - and likely they're wary of taking on any more. That's why, when the government asks them to lend more, they'll likely do whatever they can to take on as little debt as possible (which ends up helping borrowers little as well).

"For commercial banks, short-term lending carries less credit and liquidity risk and long-term lending," Societe Generale analyst Wei Yao told Business Insider last week. "Because they are more risk averse nowadays, they would prefer to lend short term if they have to lend. But that does not meet Beijing's wish of supporting investment demand."

This is bad, people.