Could China’s Manufacturing Activity Expand in 3Q17?
Manufacturing activity in China
The Chinese (FXI) economy continues to show mixed performance in 2017, as its manufacturing activity expanded in June 2017 compared to its decline in May. The manufacturing sector grew slightly in June to 50.4 compared to 49.6 in May.
China’s PMI in June 2017 rebounded into positive territory, with businesses registering a slightly stronger increase in output and new orders. The chart below shows China’s manufacturing PMI over the last year.
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Improved operating conditions in China
The operating conditions in China (VWO) have strengthened over the last 12 months. The only exception occurred in May 2017, as seen in the chart above. A manufacturing PMI above 50 indicates expansion, while a reading below 50 indicates contraction.
The improved manufacturing activity observed in June 2017 mostly resulted from faster but marginal growth in new work orders over the last three months. The new work from overseas also increased slightly in June.
Employment and purchasing activity
The job shedding in the manufacturing sector continued in June 2017, although at a reduced pace due to cost-cutting measures and improved productivity. The country’s buying activity increased slightly in June 2017 compared to May.
The price pressures remained soft in June, as the input and output prices increased slightly compared to May.
Is China’s rebound in June temporary?
China’s manufacturing activity recovered slightly in June 2017 based on inventory trends and expectations of future output. According to the IHS Markit report, the country’s June PMI seems to be in a temporary recovery. However, an economic downtrend is not out of the question. The government’s attempt to curtail credit growth has hampered economic activity so far in 2017.
The slowdown in China could affect global markets (ACWI) (VT), as China is a global manufacturing hub (AAPL) (CSCO) (CAT). China is also a major trading partner for many nations. Any decline in its supply and demand conditions could impact its trading partners (SPY) (VGK).
Let’s look at the manufacturing activity in India in June 2017 in our next article.