China had its PMI numbers out today, with the official CFLP index registering at 52.1, down both against consensus estimates (Reuters) of 53.1, and the May figure of 53.9. The HSBC index (which surveys 400 businesses, and is weighted to smaller/privately owned businesses than the CFLP index) confirmed the direction, down to 50.4 versus 52.7 in May.
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So what do the PMI numbers tell us? Well, for one thing the index is still just above 50, which indicates expansion. But the indexes have both fallen off notably, which indicates that expansion is slowing down. Note what I said in both comments: expansion. But also note the background - context is everything. There have been a number of moves this year made by the authorities in China to slow down the economy in order to avoid overheating (e.g. increasing the required reserves, clamping down on loan growth, allowing wages to rise - though that one's a positive or a negative depending on the sector, and starting to allow the yuan to move a little).
So several key questions arise (and half of knowing the answer is knowing the right questions):
- Is this slowdown in the industrial sector purely a result of policy tightening?
- Is the slowdown a result of the waning or withdrawal of the massive stimulus measures taken in early 2009?
- Is the slowdown driven by a tapering off of international demand?
Of course, the long-term story for China still remains bullish (and perhaps even more sustainable if policy tightening prevents bubbles), but it's looking increasingly like interesting times will arise over the short to medium term. The next big data release from China (which will contain GDP, as well as the usual CPI, industrial production, etc), which is due on the 15th of July, will be particularly interesting in this context. But of course, the near term outlook remains, as Premier Wen Jiabao said, "extremely complicated."
Disclosure: No positions