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What's Happening with China’s Weakening PMI?

PART:
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Part 4
What's Happening with China’s Weakening PMI? PART 4 OF 5

Why China’s Official Non-Manufacturing PMI Slowed Down in April

China’s non-manufacturing PMI

China’s official non-manufacturing PMI (Purchasing Managers’ Index) is an economic indicator that provides a snapshot of an economy’s non-manufacturing sector performance. It tracks business activities of the service sector and construction industry. A reading above 50 indicates that the activity is expanding. Below 50 signals a contraction. PMI is released every month by the National Bureau of Statistics of China.

China’s non-manufacturing PMI includes ten subindexes:

  • business activity index
  • new orders index
  • new export orders index
  • in hand orders index
  • stock index
  • input price index
  • sales price index
  • employment index
  • supplier delivery time index
  • business activities expectation index

The non-manufacturing PMI covers the retail, aviation, software, real estate, and construction sectors.

Why China&#8217;s Official Non-Manufacturing PMI Slowed Down in April

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Official non-manufacturing PMI

China’s official non-manufacturing PMI weakened in April to 53.5 after a sharp rise to 53.8 in March. This indicates that the service sector is affected by the slowdown in the Chinese economy. Non-manufacturing PMI of the service industry was 52.5, a decrease of 0.7% over the previous month. The growth rate of total business declined while the construction industry increased 59.4, a 1.4% rise over the previous month.

Subindexes of non-manufacturing PMI

The new orders index fell 2.1% from the previous month, to 48.7. This indicates that market demand of the non-manufacturing industry decreased. The input price index rose 0.7% over the previous month to 52.1, indicating that input prices during the process of production and operation of non-manufacturing enterprises continued to rise. The employment index was 49.2, an increase of 1.0% over the previous month, indicating that the pace of labor employment of non-manufacturing enterprises slowed down.

Impact on funds

Non-manufacturing PMI data indicate that the service sector is also feeling the heat of a general slowdown. However, the service sector has emerged as a major growth driver after China’s manufacturing sector was crippled due to overcapacity and sluggish demand.

Chinese funds such as the AllianzGI China Equity A (ALQAX), the Eaton Vance Greater China Growth – Class A (EVCGX), the iShares MSCI China (MCHI), and the SPDR S&P China ETF (GXC) have sizable exposure to the service sector. They would benefit from growth in the non-manufacturing sector.

These funds are invested in service companies such as Sina (SINA), JD.com (JD), Lenovo Group (LNVGY), Baidu (BIDU), and NetEase (NTES).

In the next part of the series, we’ll look at Caixin China General Services PMI data.

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