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Where Manufacturing Activity Stands in China

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China’s manufacturing sector

China’s (FXI) (MCHI) economy, based on some of its economic indicators, has recently shown signs of a slowdown. Its manufacturing and services PMIs (purchasing managers’ indexes) dropped in April 2017, with manufacturing activity slowing more than expected, and demand feeling the impact of the Chinese government’s move to curtail risks associated with high borrowing.

China’s central bank had raised borrowing costs in March, based on stable economy indicators and improved economic activity over the previous few months. China also hiked its interest rate following tightening policies in the US (SPY) (QQQ).

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China’s declining manufacturing PMI

The Caixin Manufacturing PMI in China (FXI) dropped to 50.3 in April, as compared to 51.2 in March, which was below the market expectation of 51.2. Manufacturing activity recorded its weakest expansion since September 2016. New orders, output, and new export orders grew at a slower pace amid weak business confidence, and employment declined the most since January 2017.

Growth in production eased for the second straight month in April, and new orders increased at the lowest pace since September 2016. New export orders also rose at the slowest pace so far in 2017, and finished goods stocks contracted as companies were reluctant to restock, given the decline in input prices.

Input and output price indexes fell for the fourth consecutive month in 2017. China’s Manufacturing PMI has averaged about 49.6 from 2011 to 2017.

Investment impact

As China is a manufacturing hub, its manufacturing activity largely affects global markets. The economy’s overall demand experienced weak growth, with its largest decline in the input price sub-index. The input price sub-index fell to 51.8 in March 2017—its slowest expansion—as compared to 59.3 in the same period last year.

The slowdown in China’s manufacturing activity is likely to impact stocks like Baidu (BIDU), China Mobile (CHL), CNOOC (CEO), and Tencent Holdings (TCEHY). But investors seeking exposure to China’s industrial sector have many options.

China-focused ETFs with exposure to the manufacturing sector include Global X China Materials ETF (CHIM), Global X China Industrials ETF (CHII), and First Trust China AlphaDEX Fund (FCA).

In the next part, we’ll take a closer look at India.

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