- Today, China released its manufacturing PMI data. The official and private Caixin/Markit surveys were better than expected.
- However, some of the other recent data showed a deeper slowdown. The China Beige Book survey showed that China’s economic growth could fall more in the third quarter.
China’s manufacturing PMI
Today, China released its manufacturing PMI data. The official survey put China’s September manufacturing PMI at 49.8. Notably, figures below 50 point to a contraction. China’s official manufacturing PMI has been below 50 for five consecutive months. However, the metric was better than expected. In August, China’s official manufacturing PMI data missed analysts’ estimates.
Meanwhile, the private Caixin/Markit survey expanded for the second month. The metric was 51.4 in September compared to 50.4 in August. The Caixin/Markit China manufacturing PMI was better than expected and rose to the highest level since February 2018. The US-China trade war continued to take a toll on China’s economic activity. Dr. Zhengsheng Zhong, the director of macroeconomic analysis at CEBM Group, said, “Growth in manufacturing demand was mainly driven by the domestic market as China-U.S. trade conflicts still restrained overseas demand.”
Divergence between the two manufacturing PMI surveys
Notably, we saw a divergence in China’s official and Caixin/Markit manufacturing PMI surveys for the second consecutive month in September. While China’s official PMI survey mainly focuses on large state-owned enterprises, the Caixin/Markit survey focuses on medium and small private companies. The divergence between the two surveys isn’t uncommon.
While the September manufacturing PMI surveys were better than expected, most of the other economic indicators point to a slowdown. China’s industrial profits fell year-over-year in August. The producer price inflation was also negative in July and August. Earlier in September, the China Beige Book survey estimated that China’s economic growth could fall more in the third quarter. China’s economic growth fell to a 27-year low of 6.2% in the second quarter.
US curbs China investments
On September 27, there were reports that the US planned to curb US investments in Chinese companies. The Chinese companies listed on US markets fell after the reports. Alibaba (BABA), Baidu (BIDU), and JD.com (JD) fell 5.1%, 3.7%, and 5.9%, respectively, on September 27. Looking at the YTD (year-to-date) price action, Alibaba and JD.com have risen 21.9% and 32.9%, respectively. Baidu has fallen 36.2% YTD. So far, the iShares China Large-Cap ETF (FXI) has risen 2.0% in 2019.
While China’s September manufacturing PMI surveys show a rebound in manufacturing activity, we should also consider other indicators. Trade tension with the US aggravated China’s slowdown. Read Trade War: China’s Slowdown Gets Even More Worrying to learn more. The US economy has also slowed down. Some economists blame President Trump’s trade war for slowing down the US economy. Read Are President Trump’s Tariffs Hurting the US Economy? to learn more.