2 May 2016
China: Manufacturing and non-manufacturing PMIs worse than the headline - BBH
Research Team at BBH, notes that over the weekend, China reported its official manufacturing and non-manufacturing PMIs.
Key Quotes
“Many had expected a small improvement but instead the manufacturing PMI was essentially unchanged. It slipped 0.1 to 50.1. The details seem somewhat worse than the headline. Although production slipped to 52.2 from 52.3, employment continued to contract (47.4 vs. 48.2), new orders and new export orders slipped, the order backlog continued to dry up, falling to 44.8.
The non-manufacturing sector, which includes services, is faring better as Chinese officials try to facilitate a structural shift in the economy away from manufacturing. The non-manufacturing PMI stood at 53.5 in April, down from 53.8 in March. The contraction in new orders (48.7 from 50.8) is worrisome. The increase in construction (59.4 vs 58.0) is consistent with a recovery in property and real estate that has recently been reported.
Chinese markets will be closed for a few days this week for an extended May Day celebration (whose origins are to be found in an anarchist confrontation with police in Chicago). Nevertheless, the government is set to introduce a VAT for services (instead of the current tax on income). It will generate around CNY500 bln in savings, worth an estimated 0.7% of GDP. Although many investors may not be aware of it, it does not provide net new stimulus as the government had already included it in the 3% (of GDP) this year's budget deficit target.”
Key Quotes
“Many had expected a small improvement but instead the manufacturing PMI was essentially unchanged. It slipped 0.1 to 50.1. The details seem somewhat worse than the headline. Although production slipped to 52.2 from 52.3, employment continued to contract (47.4 vs. 48.2), new orders and new export orders slipped, the order backlog continued to dry up, falling to 44.8.
The non-manufacturing sector, which includes services, is faring better as Chinese officials try to facilitate a structural shift in the economy away from manufacturing. The non-manufacturing PMI stood at 53.5 in April, down from 53.8 in March. The contraction in new orders (48.7 from 50.8) is worrisome. The increase in construction (59.4 vs 58.0) is consistent with a recovery in property and real estate that has recently been reported.
Chinese markets will be closed for a few days this week for an extended May Day celebration (whose origins are to be found in an anarchist confrontation with police in Chicago). Nevertheless, the government is set to introduce a VAT for services (instead of the current tax on income). It will generate around CNY500 bln in savings, worth an estimated 0.7% of GDP. Although many investors may not be aware of it, it does not provide net new stimulus as the government had already included it in the 3% (of GDP) this year's budget deficit target.”