Tuesday, August 23, 2011

China Manufacturing Contraction Slows (Chart) "Level close to the break-even mark"

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HSBC China Manufacturing PMI


China Manufacturing The HSBC Flash China Manufacturing Purchasing Manangers' Index, compiled by Markit, increased slightly (+0.5) in August to 49.8 from 49.3 in July. An index reading below 50 indicates an overall decrease in manufacturing. This is the first increase in the past 4 months. The Flash PMI is an early release and indicator of the complete PMI to be issued at the end of the month. The estimate is typically based on approximately 85%-90% of total survey responses and is designed to provide an accurate indication of the final PMI data.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The flash manufacturing PMI reading picked up slightly to a level close to the break-even mark in August, which is still consistent with around 13% yo-y IP growth. Despite the turmoil in global financial markets, the new exports orders index rose to a three-month high, albeit still marginally below 50. All these data suggest that the hard landing risk is still remote. This provides leeway for the PBoC to keep the current tightening measures in place.”

Trend The short-term trend 3-month moving average) is downwards for 4 consecutive months. The intermediate-term trend (6-month moving average) continues downward for the 7th consecutive month. The long-term trend (12-month moving average) is now decreasing slightly.

Cycle History Since the beginning of the series in March 2010, the peak has been in March 2010 at 55.7. The recent peak was 54.5 in January 2011. The low has been 49.3 in July 2011.

China Manufacturing PMI (Chart) Below is a chart of the China Manufacturing PMI since April 2010 through the latest month reported. Manufacturing began contracting, below an Index reading of 50, in July 2011 and now in August 2011. The PMI is a percentage - not a total. More about the PMI below the chart. A reading above 50 indicates Chinese manufacturing is expanding.


Commentary The China Manufacturing PMI at 49.8 (+0.5) indicates a slowing of the contraction of manufacturing. A reading below 50 indicates contraction. The HSBC report noted, "All these data suggest that the hard landing risk is still remote". Contributing factors to the contraction 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 China Manufacturing PMI is contracting at slower rate
● Output, New Export Orders, Employment, Stocks of Purchases: contracting at a slower rate
● New Orders, Stocks of Finished Goods: contracting at faster rate
● Backlogs of Work, Quantity of Purchases: expanding at faster rate
● Output Prices, Input Prices: inflation at faster rate
● Supplier's Delivery Times: lengthening at faster rate

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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