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A Ray of Hope? China’s July Manufacturing PMI Beats


Aug. 1 2019, Published 10:06 a.m. ET

  • Caixin/Markit released China’s July manufacturing PMI data today.
  • The reading came in at 49.9, which was better than expected.
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China’s manufacturing PMI

Today, Caixin/Markit released China’s July manufacturing PMI (purchasing managers’ index) data. China’s manufacturing PMI was 49.9 in the month. Analysts polled by Thomson Reuters expected China’s July manufacturing PMI to be 49.6. The data was better-than-expected and showed an improvement over June. In June, China’s manufacturing PMI stood at 49.4. Incidentally, China’s June manufacturing PMI fell to its lowest level since January. The figure has now been below 50 for two consecutive months, indicating a contraction in manufacturing activity.

Analysis of China’s July manufacturing PMI

According to Caixin/Markit, “Muted order book trends led companies to reduce their headcounts for the fourth month in a row, and at the quickest pace since February.” However, there were some positives in China’s July manufacturing PMI. The survey pointed to a slight increase in buying activity. It also showed that business confidence soared to a three-month high in the month. The Caixin/Markit survey also pointed to a recovery in China’s domestic demand and stability in its export markets. However, the release also stated that some Chinese companies saw weakness in export orders amid the US-China trade war.

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Official July manufacturing PMI

The Caixin/Markit survey is a private survey that primarily covers China’s medium and small enterprises. Yesterday, we also got China’s official July manufacturing PMI data. The survey is based mainly on large, state-owned enterprises. Like the Caixin/Markit survey, China’s official July manufacturing PMI also showed a contraction. However, the reading improved to 49.6 in July from 49.4 in June.

Other data points

China’s July manufacturing PMI data points to contraction. If we look at other data points, we’ll find that China’s industrial profits fell on a yearly basis in June. Producer price inflation also fell to near zero in June. Chinese GDP expanded at an annual rate of 6.2% in the second quarter. China’s second-quarter GDP growth was its weakest in 27 years. President Donald Trump has repeatedly pointed to China’s slowdown, citing his tariffs as the driver. Trump has also claimed that China needs a trade deal with the US due to its slowing economy. However, China has uncoupled its economic growth from US-China trade talks.

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US-China trade talks

The first round of in-person US-China trade talks concluded in Shanghai yesterday. The two sides didn’t release statements after the talks, which was unusual, as statement usually follow such talks. Among Chinese stocks, Alibaba (BABA) and JD.com (JD) are up 26.3% and 42.9%, respectively, so far this year. However, Baidu and NIO (NIO) are down 29.6% and 45.5%, respectively, in the period. Alibaba and JD.com stand to gain from China’s growing e-commerce sales.

As for NIO, the stock has fallen sharply this year. NIO’s rival Tesla (TSLA) is also trading with a year-to-date loss. However, mainstream automakers Ford Motor Company (F) and General Motors are in the green. Tesla and Ford reported worse-than-expected earnings last week.

Stimulus talks

The markets will expect more stimulus from China after its weak July manufacturing PMI. China’s Politburo said, “China’s economic development is facing new risks and challenges, and downward pressure on the economy is increasing.” Reuters reported, “The Politburo also said the government will take steps to cope with trade frictions, and work to stabilize employment, the financial sector, investment and market expectations.” However, the Politburo said that China would refrain from property market stimulus.

No more property stimulus

Chinese leadership has reiterated several times that it doesn’t want property speculation. Notably, during the 2015 slowdown, property market stimulus, currency weakening, and a purchase tax cut on vehicles helped China’s economic recovery. This time, China has refrained from making these moves even as car sales have fallen sharply. Prior to June, China’s car sales fell year-year-year for 12 months. However, we saw an uptick in car sales in June.


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