Flash PMI For China At A Nine-Month Low

HSBC and London-based Markit Economic released their preliminary reading of China’s manufacturing Purchase Managers’ Index (PMI) for August indicating a nine-month low. The flash PMI reading came at 47.8 for August as compared to the final reading of 49.3 in July 2012. A reading of above 50 indicates expansion while that of below 50 points towards contraction. PMI data for China is also released by the National Bureau of Statistics of China and this data has been showing mild growth in manufacturing output for all the months that HSBC has indicated a contraction.

China's Manufacturing Purchase Managers' Index (PMI)

Source: National Bureau of Statistics of China, HSBC

In accordance to the HSBC data, there has been a contraction at a faster rate in terms of new orders and new export orders. Output and employment have also contracted. There has also been a decline in output prices and input prices. Moreover, a contraction in stocks of purchases and an expansion in stocks of finished goods are indicative of lower demand on the end side. According to Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, “Falling orders dragged down the August flash PMI to a nine-month low, suggesting Chinese producers are still struggling with strong global headwinds.”

China’s slowdown is being highlighted by recent data after China’s export rose just 1 per cent as compared to the previous year. This figure has been the weakest since January, the month where exports saw a fall. The slowdown in Europe has contributed to this significantly with shipments to Europe dropping more than 16 per cent. The European slowdown has also affected Japan drastically with a 25.1 per cent dip in exports to the European Union, resulting in an 8.1 per cent fall in Japanese exports. Japan’s exports to China fell 11.9 per cent YoY, led by lower electronics and car parts shipments.

All of this data has been indicative of a domestic slowdown in China thus demanding some action from the government in order to provide stimulus to boost economic growth. There has been increasing speculation over the Chinese central bank taking steps to ease the monetary policy. Moreover, People’s Bank of China Governor Zhou Xiaochuan said yesterday that the central bank stood ready for further easing. Having looked at recent data, there is certainly a need for stimulus, and fast.