China: Pullbacks in PMIs could undermine the outlook – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest PMI releases in the Chinese economy.

Key Quotes

“The private sector Caixin manufacturing Purchasing Manager’s Index (PMI) dropped by 1.5 points to 51.5 in January (Bloomberg est 52.6) from 53.0 in December 2020, its lowest in seven months. This was a sharper decline compared to the official manufacturing PMI from China Federation of Logistics & Purchasing (CFLP) that was released on Sunday (Jan 31). The CFLP manufacturing PMI fell by 0.6 points to 51.3 in January (Bloomberg est 51.6).”

“The outlook for the services sector also turned weaker in January with the CFLP nonmanufacturing PMI slumping a sharper 3.3 points to 52.4 (Bloomberg est 55.0) – its lowest in 10 months and raising concern that consumption could have suffered a greater hit than production in the month as a result of the cold weather and coronavirus resurgence in some parts of China.”

“After repeated outperformance in the Chinese economic indicators, the broad pullback in the survey readings are a timely reminder that the threat from pandemic resurgence remains real, and could worsen with the upcoming Lunar New Year holidays. However, with the situation remaining controlled in China and seasonally weaker months during the Lunar New Year period, these factors are likely to be transient and China is still on track for stronger growth this year due to the successful vaccine rollout to achieve herd immunity and overcome the pandemic. Our GDP growth forecast for China is at 8.5% this year from 2.3% in 2020.”

“Despite weakening from end-2020, the CFLP manufacturing PMI is still in its 11th consecutive month of expansion and the Caixin manufacturing PMI its 9th month of expansion, defined as a reading above the threshold of 50.”