Operating Conditions Ease In China

The earliest indicator of the operating conditions in the manufacturing sector China, i.e. the Flash PMI has came in at 51.2 for September 2013 as against 50.1 in August. This reading is at a six-month high, indicating that the operating conditions have improved a bit this month.

The data indicates that the output and new orders (including exports orders) have increased at a faster clip. The industrial output has also increased at a faster pace, as have the output prices, input prices and backlog of work. This indicates an easing in the conditions, as a rise in prices indicates that the demand has improved moderately. Thus, the higher prices are on account of a rising demand and not due to a decline in supply, indicating improved conditions in the economy.

It should also be noted here that there has been an increase in the stock purchases as well as stocks of finished goods. Both of these indicate that the companies are holding higher inventory of raw material as well as finished good stocks in anticipation of a robust demand. The quantity of purchases has also increased at a faster rate, which adds conviction to our views.

Commenting on the Flash Manufacturing PMI survey for China, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said, “The HSBC Flash China Manufacturing PMI rose to a  six-month high in September, adding further evidence to China’s ongoing growth rebound. The firmer footing was supported by simultaneous improvements of external and domestic demand conditions. We expect a more sustained recovery as the further filtering-through of fine-tuning measures should lift domestic demand. This will create more favourable conditions to push forward reforms, which should in turn boost mid- and long-term growth outlooks”.