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China Manufacturing PMI The HSBC China Manufacturing Purchasing Manangers' Index, compiled by Markit, decreased significantly (-1.5) in June to 50.1 from 51.6 in May. This was the same (50.1) as the Flash PMI reported in an earlier post. This is the 2nd consecutive monthly decrease, the 3rd decrease in the past 5 months, and an 11-month low. Key points noted in the report were:
● Marginal decline in production levels signalled.
● Marginal decline in production levels signalled.
● New export business fell at fastest rate in twenty-seven months.
● Input cost inflation eased sharply to eleven-month low.
Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The final June PMI reading is the same as the flash number at 50.1, confirming that both activity and inflation keep cooling. This implies that policy tightening is working, pointing to a peak of inflation in the coming months. Despite of the slowdown, industrial output is still growing by 12-13% y-o-y, which is consistent with GDP growth of around 9%.”
China Manufacturing PMI (Chart) Below is a chart of the China Manufacturing PMI since March 2010 through the latest month reported. Manufacturing has expanded, remained above 50, every month except July 2010, and now for 11 consecutive months. The PMI is a percentage - not a total. More about the PMI below the chart. A reading above 50 indicates Chinese manufacturing is expanding even when the monthly PMI is decreasing, just expanding at a slower rate.
Commentary The China Manufacturing PMI at 50.1 (-1.5) indicates not only a continuing decline of the expansion rate, the expansion continues at a slower pace, but indicates the expansion has essentially stalled. The HSBC report did note the June PMI confirmed "both activity and inflation keep cooling" and the contributing factors were ongoing Chinese government intervention and measures, lower demand from external markets, and continuing inventory destocking. China has implemented fiscal and monetary measures to slow down the economy to contain prices. To what extent the slowing of Chinese manufacturing output growth is attributable to global economic demand is the concern.
● The current PMI is below the intermediate-term trend, the 6-month moving average of 51.9
● The current PMI is below the long-term trend, the 12-month moving average of 52.5
● The recent peak in expansion was 54.5 in January 2011
● The current PMI is below the long-term PMI series average of 52.4
About the PMI The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on regional and industry contribution to Chinese Industrial Production. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the ‘Report’ shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those responding ‘the same’.
● The Purchasing Managers’ Index (PMI) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers’ Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.
● Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.
About HSBC Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. Its international network comprises some 8,000 offices in 87 countries and territories in Europe; Hong Kong; Rest of Asia-Pacific; the Middle East; North America and Latin America. With assets of US$2,418 billion at 30 June 2010, HSBC is one of the world’s largest banking and financial services organisations. HSBC is marketed worldwide as ‘the world’s local bank’.
About Markit Markit is a leading, global financial information services company with over 1,900 employees. The company provides independent data, valuations and trade processing across all asset classes in order to enhance transparency, reduce risk and improve operational efficiency. Its client base includes the most significant institutional participants in the financial market place. For more information please see www.markit.com
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