Tag Archives: purchasing managers’s index

China’s Modest Manufacturing Pick-Up Will Not Gain Momentum

THE CAIXIN SERVICES purchasing managers index (PMI) hit its highest level in nearly a year in June at 54.5, following the rebound in the manufacturing PMI to 51.7, its highest level since May 2021, after four months of decline.

A PMI reading above 50% indicates expansion; The Caixin index focuses on smaller and medium-sized firms, while the official PMI tracks larger, typically state-owned companies.

While the easing of lockdowns, including in Shanghai, will have boosted the services PMI, June’s uptick in the manufacturing reading stood in contrast to a slowing of manufacturing output in the United States, the United Kingdom, Japan, India, ASEAN and Brazil, and contraction in the euro-area and South Korea.

However, China’s manufacturers will not be immune to the adverse impacts of the conflict in Ukraine and tighter monetary policies to rein in inflation will erode global market conditions. China’s manufacturing output will slow in the coming months, even if less sharply than elsewhere.

Relatively weak growth will likely continue for the rest of the year in the face of strong external and internal headwinds. These range from worsening US-China tensions to President Xi Jinping’s doubling down on the zero-Covid-19 policy. These are buffeting domestic economic activity, which was already slowing, and global supply chains already under strain.

If China gets away with fewer lockdowns — and softer ones — it should see manufacturing, consumption and investment pick up. There will be continuing monetary and fiscal stimulus to bolster private spending and employment, both critical to the twin goals of growth and social stability.

The risk remains old-school investment spending, which could fuel financial instability, especially in the still beleaguered property sector. The government announced an extra $120 billion of lending for infrastructure by state policy banks at the start of June and a further $80 billion via bond issuance at the end of the month.

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Slowing Growth Will Test Beijing’s Response To Power And Property Crises

THE LATEST PURCHASING managers’ index (PMI) shows the blow that power shortages have landed on China’s manufacturers.

September’s PMI indicates that manufacturing activity contracted for the first time since the beginning of the pandemic. At 49.6, the index was below the 50-point dividing line between contraction from expansion. February 2020 was the last time the PMI had dropped below 50.

Power shortages are not the only reason for manufacturing’s slowdown. The economy has been slowing for much of the year, and sporadic outbreaks of the Delta variant causing localised lockdowns have been disruptive. There is now also the property market crisis, of which Evergrande is the most visible sign, and the measures being taken against some business sectors in the name of promoting ‘common prosperity’.

The question for authorities now is whether the official September PMI heralds a slowdown of fourth-quarter GDP growth that will be sufficiently sharp to require remedial stimulus, which would conflict with the drive to deleverage the economy.

The signals are ambiguous. September’s services PMI rose, to 53.2, after contracting to 47.5 in August. The Caixin China General Manufacturing PMI, which is more reflective of conditions in smaller and medium-sized and non-state businesses, also rose in September after contracting in August for the first time since April 2020. Nonetheless, September’s reading, taken earlier in the month than the official PMI, only recovered to 50.

Private-sector economists such as Goldman Sachs and Nomura have recently cut their forecasts for full-year growth to less than 8% based on the weakening economy in the second half. That would still leave plenty of leeway to hit the official target of at least 6% GDP growth. Whether that narrows will turn on the capacity of the central government to manage the power crisis and the Evergrande bailout.

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No Surprise, China’s Economy Is Flat-Lining

China’s economy is flat-lining by its own standards, although many a country would take its 7%-8% growth rate. The latest measure of factory activity, HSBC’s purchasing managers’ index for May, came in at 49.2, down from April’s 50.4. This is the first time in seven months that it has fallen below the 50 level that delineates expansion from contraction.

The number was slightly worse than the flash, or preliminary, reading of 49.6 a week ago. The full month number does nothing otherwise to change the implication that the modest expansion of manufacturing activity that has been seen since the slowing economy started to pick up steam again last autumn has been replaced by modest contraction, or that the weakness seen by China’s manufacturers in global demand for their goods and services has spread to their domestic customers.

Similarly, policy makers are likely not to make any significant change to fiscal or monetary policy, especially as home price increases are starting to show some slowing in response to measures to cool the property market. While there is little evidence of any recovery in growth in the second quarter, and limited prospects for a pick-up in activity in the third, neither are there signs that the economy is about to deteriorate sharply.

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China’s Economic Outlook Remains Mixed

China’s official Purchasing Managers’ Index (PMI) for non-manufacturing industries brings some glass-half-full cheer to those who believe the slowdown in the economy’s growth has come to an end. It rose to a three-month high of 56.7 for June, up from May’s 55.2. The glass-half-empty crowd will point to the continuing weakness in manufacturing. At 50.2 for June, its official PMI was barely above the line dividing expansion from contraction, a line below which the unofficial HSBC PMI, which is weighted towards export-oriented small and medium-sized companies, already hovers.

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