The Daily Update: China PMIs

Earlier this week we had the release of China’s July official PMI’s; manufacturing and non-manufacturing both slowed from the previous month but remained in expansion at 50.4 and 53.3 respectively.

In manufacturing, the sub-indices showed general weakness with only employment a little stronger, input and output prices fell hard from the lofty levels of May although remaining in expansion. Forward looking new orders and export orders also weakened, reflecting a softening in momentum from the demand side; this is thought be similar to other countries where we have seen a recent sharp rise in some prices, accompanied by supply side constraints, putting downward pressure on consumer consumption.

The Caixin manufacturing PMIs told the same story as the official reports slowing to 50.3 more than expected. Caixin is a privately held company involved in news and publishing with their China PMI index one of the most widely watched indicators; they took over the index from HSBC in 2015.

The official non-manufacturing PMI index was affected by a slowdown in the construction sector although the service sector remained robust, but this is thought to be before the impact of the further closing down of certain provinces and cities due to the most recent outbreak of the Covid delta variant.

Like all countries, China is still open to further disruptions from the pandemic, the recent shut down of Guangdong province, one of China’s main manufacturing bases is a case of note, as this could have heavily impacted supply constraints and pushed up prices further dampening consumer sentiment. However, the latest efforts to accelerate the vaccination process should enable them to open the economy further which should increase consumer demand and ease the current reliance on construction and manufacturing.

Indeed, the latest politburo meeting maintained an easing bias with a focus on the medium-term outlook with priorities including a smooth transition to longer term potential GDP growth while maintaining vigilance on domestic debt issues, notably in the property sector.