Tag Archives: services PMI

China’s Economy Continues Long Haul Of Recovery

MORE EVIDENCE THAT China’s economy is fitfully grinding out recovery from the ravages of Covid-19 comes from Caixin’s manufacturing purchasing managers’ index (PMI) for August.

This hit 53.1, up from 52.8 in July and was the fourth consecutive month of expansion. Readings above 50 signal growth.

Caixin’s index is more weighted to private sector manufacturing than the official index, whose August reading showed the pace of expansion levelling off from July, perhaps because of flood-disruption in western parts of the country. Non-manufacturing remains strong, however, with the official services PMI rising to 55.2 from July’s 54.2.

Caixin’s August number is in line with other data showing rising manufacturing exports and employment. Stimulus measures to offset the impact of Covid-19, equivalent to about 4% of GDP, are working through the economy, though they are investment-led, rather than directly supporting consumption. The policy drives for import substitution and technological self-sufficiency look to be kicking in, too.

Growth for the year of around 2% looks achievable, which would make China the only large economy to grow this year. Still, it is hard to escape the conclusion that for now demand still lags supply, and will do so until domestic small business gets back onto a sound footing, stimulus measures start to boost consumer sentiment and household spending, and economies around the world recover their strength, which looks the most distant prospect of the three.

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A Tiny Black Cloud In The Silver Lining Of China’s Economic Rebound

Economic revival is well underway in China, or at least modestly well underway to the tenor of the times. The most recent readings of the two widely followed purchasing managers’ indices, HSBC’s and, to a lesser extent, the government’s, shows it, as does Thursday’s release of the government’s PMI for services. That rose to 56.1 in December from 55.6 the month before, the fastest pace of expansion in four months. The combination of easier monitor policy and infrastructure investment is the cause.

Yet therein lies a cause for concern. The sub index for construction services shows particularly strong growth, raising fears that the revival is too reliant on Beijing’s old stimulus standby, investment spending. Land prices, too, are picking up. Together they comprise a latent sign of the property bubble so carefully deflated over the past three years starting to re-inflate, despite Beijing’s assurances that it will not ease the constraints imposed on both buying property and the credit to fund it. Policymakers could afford to be a bit more sanguine about it all were they not worried about the potential for a bad-loans crisis in the shadow banking system.

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