Chinese manufacturing takes a hit from abroad

Cross-posted from Macrobusiness

The just released official manufacturing purchasing mangers index (PMI) for China shows a small rebound in August.  The headline PMI rose from 50.7 in July to 50.9 in August, just slightly below market expectation of 51.1.

The new orders index was flat at 51.1, and output rose from 52.1 to 52.3.  Raw materials inventory rose from 47.6 to 48.8, while finished goods inventory fell from 49.2 to 48.9, which are both good signs as they are below 50, indicating there is less pressure of inventory build-up.

Input prices, however, rose from 56.3 to 57.2 after falling for the most part of this year, highlighting the fact that inflation is far from under control.  Another point worth noting is that new exports orders fell from 50.4 to 48.3, the first time since the recovery from the financial crisis in 2008.  This highlights the difficult situation in the global macro environment, while at the same time pointing to relatively robust domestic economy.

As you can see, the August reading is the weakest since 2008 and second only to 2008:

This set of numbers is relatively neutral, there are some good bits as well as bad bits in the data.  On one hand, you have the data which shows the domestic economy holding up, but on the other hand you have clear signs of weak external demand.  While the global economic slowdown is underway, you have inflationary pressure clearly not going away, which points to a lower probability of monetary easing.

Meanwhile, the HSBC/Market China manufacturing PMI headline figure was 49.9, rebounding from 49.3 in July, but still below 50, indicating a manufacturing contraction.  On the whole, this is subdued news.

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    1. fajensen

      No, The increasingly common Chinese practice of welching on futures contracts and then having to pay cash before delivery of the next shipment is slowing the Chinese purchasing of Australian minerals :)

  1. ambrit

    Macrobusiness seems to be our ‘frontier outpost’ to “The East” as it were since Hong Kong went back to the Great Helmsman.
    If my appreciation of this post is correct, China is just spinning its’ wheels as far as exports go. The post says somewhere that ‘domestic’ economic signs are still good. What about the Chineese housing bubble? All accounts show that to be really big relative to the ‘domestic’ economy of China. If newly wealthy Chineese have been on a building boom, and the lower classes cannot afford to purchase the resulting units, who takes the haircut when it all pops? I don’t know enough to say whether or not the Chineese central banks will do a big QE program of their own, but, do they have the wherewithall? Yes, they can print money to cover the shortfalls, as all sovreign states can do, but do they want to? China has been showing that domestic inflation is one of their chief concerns. When this all goes South, will the Chineese panic and unload all their US Treasuries at one fell swoop? If wiser heads prevail, and the Chineese seem to have been outfoxing us since at least “Chineese” Clintons terms of office, just whom will the Chineese ‘lean on’ to finance the ‘soft landing’ their economy will require? Hmmm.. Geopolitics sure is fun, ain’t it?

  2. Philip Pilkington

    “This set of numbers is relatively neutral…”

    Not on my reading. I reckon those export figures are far more indicative of China’s future than the domestic growth.

    Exports fall => property goes down the toilet => domestic economy stumbles.

    That’s my reading. Of course, the Chinese Communists aren’t as doctrinaire as us all in the West (note: irony) so they shouldn’t have a big problem with ratcheting up the fiscal policy in response. But that’ll take a few years to really get moving methinks.

  3. Justicia

    Excellent article in Foreign Affairs that connects the dots:

    Crisis Convergence
    Why the global economic crash, the rise of the Tea Party, the Arab Spring, and China’s coming fall are all connected.


    The 2008 eruption demonstrated the hollowness of claims made by economists and politicians in the 1980s and
    thereafter that lasting stability and prosperity would be assured by low inflation, free markets, and unfettered
    globalization. The last quarter-century of faulty economic thinking has left us with a sour and acrimonious
    legacy, including the need to reduce the dead weight of 25 years of accumulated debt; the loss of credit creation,
    housing, and financial services as leading drivers of growth; rising income inequality; and a populist backlash
    against political and financial elites. The crisis shocked the pre-existing economic and political order on a scale
    unseen since the 1930s. The fabric of globalization, which had been stitched together around the so-called
    Washington Consensus, began to fray.

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