China: NBS manufacturing PMI unchanged in September

China’s official manufacturing PMI released by the country’s National Bureau of Statistics (NBS) was unchanged at 51.1 (consensus: 51.0, DMB: 50.8) in September compared with August. The details were mixed with new orders declining slightly from 52.5 to 52.2 and export orders improving slightly from 50.0 to 50.2. Inventories were cut at a faster pace in September with the finished goods inventory component declining more significantly from 48.1 to 47.2. The new order-inventory balance improved slightly in September and remains relatively healthy and does not suggest any substantial deterioration in the NBS manufacturing PMI in the coming months.

The development in the NBS manufacturing PMI is overall consistent with the development in the HSBC/Markit manufacturing PMI, which, in its final estimate for September released yesterday, was also unchanged month on month at 50.2. That said, there are also some important differences in the two manufacturing surveys. The HSBC/Markit manufacturing survey suggests that strength is currently mainly within exports (export orders component exceeded 54 in September) while domestic demand is relatively subdued. The NBS manufacturing PMI on the other hand suggests domestic demand was more resilient in September.

The relatively resilient manufacturing PMIs suggest that China is currently not facing a severe slowdown as indicated by the very weak hard data for August. As shown in the chart on page 2, there is now a substantial gap between the manufacturing PMIs and the industrial production data. In our view, China is currently in a phase where the economy is again losing some momentum due primarily to weaker credit growth and investment demand, but some of this weakness in investment demand appears to be offset by relatively resilient private consumption and in particular some improvement in exports. We still expect the manufacturing PMIs to move moderately lower in the coming months but the current relatively strong details do not suggest we should expect a substantial decline.

With mainly downside risk on growth, China still has an easing bias on fiscal and monetary policy. However, the manufacturing PMIs do not suggest the slowdown is severe enough for the Chinese government to implement substantial new easing measures. Hence, China is likely to stick to its current strategy of modest ‘targeted’ easing measures if needed. Regarding the Chinese currency, we believe the Chinese government will still allow a modest appreciation of the CNY against the USD on the back of the recent surge in the trade balance surplus as long as growth does not slow severely.