China: Official PMI Steadies

Econintersect:  The official government manufacturing PMI (Purchasing Managers’ Index) appears to be stabilizing for March with a reading of 50.3, up insignificantly from February’s reading of 50.2.  Readings above 50 correspond to an expanding manufacturing sector.  The reading was right in line with expectations, according to The Sydney Morning Herald.  A second private survey by HSBC remained under 50.  The two surveys cover different companies.

The HSBC/Markit Manufacturing PMI produced a final reading for March of 48.0, not significantly different than the 48.1 “flash” (preliminary) reading last week.  The new reading is significantly lower than February’s 48.5.  The only encouraging part of the HSBC report was that new export orders strengthened for the first time in four months.  However the important areas of new orders overall, as well as output, were weaker in March than previous months.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the latest report:

“The final reading of the HSBC China Manufacturing PMI in March confirmed the weakness of domestic demand conditions. This implies that 1Q GDP growth is likely to have fallen below the annual growth target of 7.5%. We expect Beijing to fine-tune policy sooner rather than later to stabilise growth.”

Click on graphics for larger image.

The official PMI survey covers mostly large and state owned industries while the HSBC survey covers mostly privately held small and mid-sized companies.

A Financial Times report by Tom Mitchell provides some worrisome details about how some of China’s large companies are “padding out bottom lines”.  Such things as rescheduling debt payments, selling off assets and inter-group accounting “treatments” are beefing up bottom line, to avoid declaring losses or decreasing the size of losses.

Econintersect worries that accounting shenanigans may not be visible to the purchasing managers staff that completes the monthly survey, and even if it is, these people may not fully appreciate how temporary and stop-gap such accounting ploys can be.

Click on image of first page below for full HSBC/Markit report (pdf):

John Lounsbury

Sources:

• China PMI inches higher (Sydney Morning Herald, 01 April 2014)

• March data signals sharpest fall of output since November 2011 (Press Release, HSBC Manufacturing PMI, Markit, 01 April 2014)

• March data signals sharpest fall of output since November 2011 (Report, HSBC Manufacturing PMI, Markit, 01 April 2014)

• China HSBC manufacturing PMI hits eight-month low in March (Adam Rose, Reuters, 31 March 2014)

• Struggling Chinese groups pad out bottom lines (Tom Mitchell, Financial Times)

• China: Manufacturing Contraction Continues (GEI News, 25 March 2014)