Here's what was puzzling about China's surprisingly strong data this week by David Scutt on Sep 1, 2016, 11:55 PM Advertisement
 Out of the blue, China’s manufacturing sector sprung back to life in August, recording the fastest expansion in activity level since October 2014. Even though at just 50.4 the improvement in the official manufacturing PMI was close to negligible, it came as a shock to markets who had been expecting another sub-50 reading, which would have signalled a continued contraction of the sector. This chart shows the trend in the official PMI over the past decade. In a note following the release of the report, Wei Li, an economist at CBA, was somewhat perplexed at the strong result, suggesting that it came despite a raft of factory shutdowns ahead of this weekend’s G20 leaders summit, held in the Chinese city of Hangzhou. He explains: We are not entirely sure how the official manufacturing PMI was able to completely shrug off the impact of suspension of heavy industrial production in eastern parts of China from 22 August to 6 September (in order to ensure the sky appears clean and blue during the G-20 summit held in Hangzhou on 4-5 September. According to the Wall Street Journal, hundreds of factories of chemical companies, construction material producers and textile manufacturers were affected across the Yangtze River Delta region, comprising Shanghai, Zhejiang, Jiangsu, Anhui and Jiangxi provinces. Nine cities in Shandong province, nearly 700kms north of Hangzhou, also pledged to restrict factory production if needed, to limit the inter-region transmission nature of air pollution. A lot of shutdowns, in other words. Done in an attempt to ensure beautiful blue skies for the G20 meeting, continuing the trend seen around other significant political, economic and cultural events in the past. The government’s official PMI was also stronger than the separate Caixin-Markit manufacturing PMI report, raising eyebrows among some in markets given it came just days before the G20 meeting. While there was a divergence between the two, the reality is that the differential was almost non-existent. 50.4 versus 50.0 is nothing in the scheme of things. It must also be remembered that the surveys have a different focus, with the Caixin-Markit survey focused on smaller manufacturing firms. Indeed, that survey had activity levels unchanged in August from July, stronger than the performance seen in the government PMI report which had activity levels among smaller firms contracting. Still, the strength of the official PMI was a surprise. Given all the disruptions seen in August, perhaps the 50.4 reading hints that activity levels elsewhere in the country are performing even stronger.
| 
0 comments:
Post a Comment