Baidu Planet: China Manufacturing Contracts to 28-Month Low! (Chart) "Declines at fastest rate since March 2009"

● Baidu Planet ●

HSBC China Manufacturing PMI

China Manufacturing The HSBC Flash China Manufacturing Purchasing Manangers' Index, compiled by Markit, decreased significantly (-1.2) in July to 48.9 from 50.1 in June. An index reading below 50 indicates an overall decrease in manufacturing. This is the first decrease since July 2010 (49.4). The Flash PMI is an early release and indicator of the complete PMI to be issued later this 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: “Headline flash PMI fell below 50 for the first time since July 2010, suggesting slowing momentum of manufacturing activities. This implies that June's rebound in industrial production was just temporary. We expect industrial growth to decelerate in the coming months as tightening measures continue to filter through. That said, resilience of consumer spending and continued investment in a massive amount of infrastructure projects should support a nearly 9% rate of GDP growth in the rest of the year.”

Trend The short-term trend is downwards for 3 consecutive months. The intermediate-term trend (6-month moving average) continues downward for the 6th consecutive month. The long-term trend (12-month moving average) has been level for 3 consecutive months.

Cycle History Since March 2010, the peak has been March 2010 at 55.7. The low has been 48.9 in July 2011.

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 July 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 even when the monthly PMI is decreasing, just expanding at a slower rate.

Commentary The China Manufacturing PMI at 48.9 (-1.2) indicates the first contraction of manufacturing since July 2010. The 11 consecutive months of expansion has stopped. The HSBC report noted, "We expect industrial growth to decelerate in the coming months as tightening measures continue to filter through". 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 current PMI is below the intermediate-term trend, the 6-month moving average of 51.0

● 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, since March 2010, of 52.1

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