China: Improving PMIs versus weak hard data – ABN AMRO


Arjen van Dijkhuizen, senior economist at ABN AMRO, points out that China’s PMIs for November published over the past few days showed a clear improvement.

Key Quotes

“The official manufacturing PMI published on Saturday rose to an eight-month high of 50.2 (October: 49.3, consensus: 49.5) and the non-manufacturing PMI jumped to 54.4 (October: 52.8, consensus: 53.1).”

“On Monday, Caixin’s manufacturing PMI came in at 51.8 (October: 51.7, consensus: 51.5), the highest reading since 2016. Caixin’s PMI – with a relatively strong coverage of the private sector – started rising back in July, possibly reflecting that Beijing’s piecemeal easing campaign is targeted at the private sector. While the PMIs suggest growth momentum is improving, the latest hard data (for October) were not encouraging.”

“Industrial production growth fell back to 4.7% yoy. Growth of retail sales dropped to 7.2% yoy, the weakest pace since 1999. Fixed investment slowed to 5.2% yoy, the lowest number on record. Growth of imports and exports also remained in negative territory, new lending volumes came down and industrial profits reached the weakest number since 2011 (-9.9% yoy).”

“The discrepancy between improving business confidence and weak hard data does seem to be, at least in part, related to the (twists and turns in the) US-China conflict. The export sub index in the latest official PMI survey rose by almost two points, possibly supported by rising expectations that the tariff tit-for-tat has come to an end. That said, the Phase One deal announced in early October still has to be signed and many uncertainties remain, for instance on how much rollback on existing tariffs could be agreed on and under what conditions (such as an enforcement mechanism).”

“All in all, assuming no further stepping up in US-China tariffs, we expect a bottoming out in industry next year. That will help the Chinese economy stabilise: we expect official GDP growth to slide only marginally to 5.8% in 2020, from 6.0% yoy seen in Q3-2019.”

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