Counter to multiple recent analyst calls for an extremely hard landing for China’s economy, recent economic data suggests the complete opposite – a soft landing.
I believe those making the hard landing call are focusing on the sell-off in the major Chinese equity index, the Hang Seng (Fig 1.1-1.3). The Chinese equity index is not what should matter to investors. What should matter is whether China’s engine of growth is revving up again. I expect it will.
While the monetary tightening cycle in China that began last fall has not officially been declared over, my message to investors – IT IS OVER. Despite the People’s Bank of China raising interest rates five times since last fall, the state of China’s manufacturing is still expanding.
• China’s September Purchasing Managers’ Index (Manufacturing) was reported at 51.2, above the prior month’s 50.9.
• This figure slightly exceeds expectations for 51.1.
• The Index has remained above the expansion/contraction 50 level for 31 consecutive months, dating back to the winter of 2009 (Fig 1.4).
• New export orders rose to 50.9 from 48.3, the highlight of the sub-indexes (Fig 1.5).
• The input price index fell to 56.6 from 57.2. Six months ago it was 68.3, supportive of the tightening measures taken to cool inflation (Fig 1.6).
• Imports rose to 50.1 from 49.7, and employment rose to 51.0 from 50.4.
Fig 1.1 Hang Seng Index Down Over 21% in Q3
Fig 1.2 Hang Seng Index Down Over 23% Year To Date
Fig 1.3 Hang Seng Index, January 2009 to October 2011
Fig 1.4 China PMI, October 2007 to October 2011
Fig 1.5 China PMI New Export Orders Rise; Supportive of a Global Economy that Is NOT Falling Into a Renewed Recession
Fig 1.6 China PMI Input Prices Moderate; Supportive of Inflation Cooling