Official PMI Indicates Expansion, HSBC PMI Says Contraction
Econintersect: The two PMI (Purchasing Managers Index) reports diverged 
further in July. The official government report rose to 50.3, up from 50.1 in June. Readings above 50 indicate expansion. However, a second survey conducted by HSBC, was showing deepening contraction numbers, with a reading of 47.7, down from June’s 48.2. The new orders index was even lower at 46.6. The official index covers large, often government owned enterprises, while HSBC surveys medium and small sized companies, mostly privately owned.
Here is the Chinese language graphic for the HSBC PMI from Markit:
Reuters reports that service businesses are doing much better in China than manufacturing:
Investors trying to gauge what is happening in the world’s second-largest economy also look at surveys on China’s fledgling services sector, which has been holding up relatively well compared to the manufacturing sector.
China’s official PMI suggest services are growing faster than manufacturing. The services measure has hovered between 53.9 and 56.7 in the past 12 months, while manufacturing has fluctuated between 49.2 and 50.9.
The official PMI is benefiting from government investment spending on infrastructure which has been carrying the Chinese economy. Many economists feel that the over investment in infrastructure must slow in a rebalancing of the Chinese economy to raise domestic consumption from 25% of the economy, one of the lowest levels in the world.
The divergence of the two PMI readings is nothing new, although it is only in the last 18 months that lack of agreement has straddled the 50 line, the demarcation between expansion and contraction. Kate Mackenzie at FT Alphaville confesses some confusion over the divergence and offers a number of speculations that are different from the suggest we made above. Mackenzie has the following graphic which shows that most of the divergence situations have involved the HSBC PMI being lower than the official number.
Sources:
- China HSBC PMI Report – 7月份运行放缓趋势加剧 (Markit, 31 July 2013)
- China HSBC PMI dips to 11-month low in July (Kevin Yao, Reuters, 31 July 2013)
- Again, with the China PMIs divergence (Kate Mackenzie, FT Alphaville, 01 August 2013)
