Wednesday, August 8, 2012

China Manufacturing Contracts: "External markets continuing to deteriorate"

The HSBC China Manufacturing Purchasing Managers' Index, compiled by Markit, indicated ongoing manufacturing contraction in July. The PMI did increase +1.1 to 49.3, a 5-month high, which indicates a slowing of the contraction.

The reading is above the 32-month low of 47.7 in November 2011. An index reading above 50 indicates an overall increase in manufacturing. The China Manufacturing PMI has been below 50 for 9 consecutive months and for 12 of the past 13 months.

Another PMI, by the Chinese Federation of Logistics and Purchasing, dipped -0.1 to 50.1 in July, indicating near stagnation. This contradicts the HSBC China PMI. What to make of this? How about averaging them. The two contrasting PMI’s averaged together are 49.7, which indicates a slight contraction for China manufacturing. There has been some recent questioning of the CFLP PMI being overstated.

China Manufacturing PMI Manufacturing began contracting, an Index reading of less than 50, in July 2011. The chart peak was 55.3 in November 2010. The short, intermediate, and long-term trends are now level. The PMI is a percentage - not a total.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, said: "Final manufacturing PMI confirmed only a modest improvement of manufacturing conditions thanks to the initial effect of the earlier easing measures. But this is far from inspiring, as China’s growth slowdown has not been reversed meaningfully and downside pressures persist with external markets continuing to deteriorate. We still expect Beijing to step up policy easing in the coming months to support growth and employment".


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