China: NBS manufacturing PMI improves slightly but details remain weak

China’s official manufacturing PMI published by the National Bureau of Statistics (NBS) in March improved slightly to 50.1 (Consensus: 49.7, DBM 49.5) from 49.9 in February. The HSBC/Markit manufacturing PMI in its final reading also released this morning declined to 49.6 (revised up from 49.2) from a final reading of 50.7 in February.

The details were relatively weak with the improvement in March primarily driven by an improvement in current output to 52.1 from 51.4. New orders declined slightly to 50.2 from 50.4, while export orders declined slightly to 48.3 from 48.5. Inventories of finished goods were cut at a less faster pace in March with the finished goods inventory component increasing to 48.6 from 47.0. Hence, the new order-inventory balance continued to deteriorate in March.

The details in the HSBC/Markit manufacturing PMI were also relatively weak with new orders declining to 49.8 from 51.2 but export orders improving to 49.8 from 48.5. Inventories were cut at a slightly faster pace with the finished goods inventory component declining to 49.5 from 50.4. Hence, the new order inventory balance also deteriorated slightly in this survey.

The weak picture for manufacturing was also evident in other manufacturing PMIs released across Asia this morning. In March Japan’s manufacturing PMI declined to 50.3 from 51.6, South Korea’s declined to 49.2 from 51.1, Taiwan’s declined to 51.0 from 52.1, Vietnam’s declined to 50.7 from 51.7 and finally Indonesia’s declined to 46.4 from 47.5.

Despite the better-than-expected manufacturing PMIs in China, the weak details suggest that the near-term outlook remains weak albeit more aggressive monetary easing should gradually become a stabilising force. At the moment there is a substantial gap between the manufacturing PMIs and the hard industrial production data with the manufacturing PMIs not yet consistent with the more severe slowdown evident in the industrial production data. The hard industrial production data suggest GDP growth could decline below 7.0% y/y in Q1 from 7.3% y/y in Q4 14.

China is shifting to a more aggressive easing mode and we expect both the leading interest rates and the reserve requirement to be cut in the coming months. This should gradually become a stabilising force.