China: HSBC PMI Weaker than Expected, Contraction Continues

Econintersect:  The final manufacturing PMI (Purchasing Managers’ Index) for April compiled by HSBC and reported by Markit came in lower than expected for April 2014 at 48.1.  The preliminary (“flash”) reading ten days ago had been higher (48.3).  Readings below 50 indicate contraction.  The HSBC survey covers small and mid-sized mostly privately owned companies which are relatively sensitive to the export market.  The official PMI compiled by the government from larger, mostly state owned companies was reported five days ago at 50.4.  These companies are more effected by domestic activity and less by exports.

The official PMI report indicated a contraction in exports and the most recent trade data had shown unexpectedly weak exports for February and March.  The HSBC PMI data would suggest that weak export activity has continued for April.

The HSBC PMI has been noticably weak since mid-2011 with 24 of the last 32 months indicating contraction, although many of those months have shown good export growth.

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

“The final reading of the HSBC China Manufacturing PMI stabilised at 48.1 in April, up slightly from 48.0 in March, and revised down from an earlier flash reading of 48.3. The latest data implied that domestic demand contracted at a slower pace, but remained sluggish.  Meanwhile, both the new export orders and employment sub-indices contracted, and were revised down from the earlier flash readings. These indicate that the manufacturing sector, and the broader economy as a whole, continues to lose momentum. Over the past few days, Beijing has introduced more reform measures which could support growth by inducing more private sector investment. We think bolder actions will be required to ensure the economy regains its momentum.”

John Lounsbury

Sources:

• Business conditions continue to deteriorate in April (Press Release, HSBC Purchasing Managers’ Index, Markit, 05 May 2014)

• Weak China report depresses Asian markets (Patrick McGee, Financial Times, 05 may 2014)

• China PMI Little Changed, Exports Contract (GEI News, 01 May 2014)

• China: Trade Declines Unexpectedly (GEI News, 10 April 2014)