The manufacturing PMIs for December were mixed but on balance still suggest that the Chinese economy continues to recover. The NBS manufacturing PMI in December was unchanged at 50.6 and hence disappointed slightly. However, the HSBC manufacturing PMI in its final reading was revised markedly higher to 51.5 in December and now shows a substantial improvement from November.
Other data released in Asia in recent days also suggest China is recovering. South Korea’s foreign trade data for December showed strong improvements in exports to China and the manufacturing PMIs for South Korea and Taiwan – both very dependent on exports to China – improved markedly in December.
The manufacturing PMI released by China’s National Bureau of Statistics (NBS) in December was unchanged at 50.6 (Cons: 51.0, DB: 51.0) compared to November and hence disappointed slightly. New orders were also unchanged at 51.2 and the export order component declined marginally to 50.0 in December from 50.2 in November.
The HSBC manufacturing PMI for December was revised markedly higher to 51.5 (Cons: 50.9, DB:51.2) in its final estimate from just 50.9 in the preliminary flash estimate and now shows a substantial improvement from the 50.5 final reading in November. The HSBC manufacturing PMI now is at its highest levels since May 2011. We regarded some upward revision of the HSBC manufacturing PMI as likely, because the survey for the December flash estimate was done earlier than usual in the month and was based on a relatively small sample.
Other data released across Asia in recent days also suggest that the recovery in China continues. South Korea’s foreign trade data for December released on Tuesday showed strong improvements in exports to China, while exports to Europe continued to deteriorate (see charts on next page). In addition, South Korea’s manufacturing PMI in December improved markedly to 50.1 from 48.2 in November and Taiwan’s manufacturing PMI in December also improved markedly to 50.6 from 47.4 in November. Both these economies are very dependent on exports to China and it appears that the recovery in China has also started to spill over into these economies.
Assessment & Outlook
Despite the slightly disappointing NBS manufacturing PMI, the data released in recent days on balance continue to suggest that the Chinese economy has bottomed out and has started a moderate recovery. Manufacturing PMIs around 51 suggest GDP growth around 8.5% q/q AR. We expect the manufacturing PMIs to improve to the 52-53 range in Q2 13 consistent with our view that GDP growth will exceed 9% q/q AR in Q2. Policy-wise we expect monetary policy to be on hold and risks are increasingly moving towards a possible rate hike in late 2013. Fiscal policy will continue to boost growth in the coming months, albeit no major stimulus is expected to be announced.