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China PMI

10/03/2011

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 PMI
•  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

Source:  Bloomberg

Fig 1.2 Hang Seng Index Down Over 23% Year To Date

Source:  Bloomberg

Fig 1.3 Hang Seng Index, January 2009 to October 2011

Source:  Bloomberg

Fig 1.4 China PMI, October 2007 to October 2011

Source:  Bloomberg

Fig 1.5 China PMI New Export Orders Rise; Supportive of a Global Economy that Is NOT Falling Into a Renewed Recession

Source:  Bloomberg

Fig 1.6 China PMI Input Prices Moderate; Supportive of Inflation Cooling

Source:  Bloomberg

 

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