China: HSBC PMI Still Indicating Contraction

May 2nd, 2012
in econ_news

Econintersect:  The headline from Dow Jones Newswires blares that the HSBC final PMI (Purchasing Managers Index) “signals economy recovering.”  China-flagHowever, the index value is still below the dividing line defining expansion/contraction at 50 with a reading of 49.3 for April, up from 48.3 in March.  So the direction of the PMI is good, improving month-over-month.  But technically “recovering” is an overstatement since the numbers are actually saying there is still a contraction, but the contraction is less than the month before.  It is the sort of thing that might be called “less bad.”

Follow up:

Yesterday GEI News covered the reports of the official PMI which is issued by the China Statistics Bureau and Logistics Federation.  That report indicated moderately strong growth with a reading of 53.3 in April, up from 53.1 in March.  That index showed the fifth consecutive month of economic expansion.

There has been some concern that the two PMI readings have diverged from each other over the past six months.  But economists seemed convinced now that even the lower HSBC number is consistent with a strengthening economy in China. From The Wall Street Journal:

"China's real economy is recovering," said Lu Ting, an economist at Bank of America-Merrill Lynch. "The chance is slight for China to post lower growth in the second quarter, compared to 8.1% growth in first quarter," he added.

Despite the recent improvement, Lu still expects Beijing to further release liquidity by cutting the reserve requirement ratio for banks twice in the rest of the year and boost investment in infrastructure and public housing.

Meanwhile, HSBC economists said they expect the Chinese economy to bottom out in the second quarter. "With easing measures starting to work and further measures on the way, China's growth looks set to recover to over 8.5% in the second half," HSBC economists said in a note.

The HSBC PMI focuses more on smaller and private companies, while the official PMI surveys many large and state-owned companies.  The Dow Jones Newswires article indicates that the difference between the two gauges may be because smaller companies, which have a harder time accessing credit, are recovering slower than large ones, economists have said.  This was pointed out in the GEI News article yesterday:

The federation’s “large and medium-sized companies” sub- index was 53.7 for April while its “small companies” gauge was 49.1, the same as HSBC’s preliminary reading.

John Lounsbury


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