China PMI shows stabilising economy, but risk of decline

Although the manufacturing PMI over the past three months seem to indicate that the economy has begun to stabilise, slowing growth of fiscal income points to insufficient momentum to drive future economic growth.

Caixin PMI Purchasing Managers Index

The Caixin Manufacturing Purchasing Managers’ Index (PMI) in China stood at 50.1 in September of 2016 up only fractionally from the 50.0 it registered in August and in line with market consensus.

It was the third straight month of expansion as output and new orders went up marginally while new export orders stabilised. At the same time, job shedding eased and firms raised their purchasing activity for the third month in a row. The amount of outstanding business increased further and inflationary pressures showed signs of picking up.




“The readings for the manufacturing PMI over the past three months seem to indicate that the economy has begun to stabilise. But given that the growth rate of fiscal income has slowed recently while expenditures have swung, there is insufficient momentum to drive future economic growth, and there is a risk that industrial output may decline,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

Manufacturing PMI in China averaged 49.39 from 2011 until 2016, reaching an all time high of 52.30 in January of 2013 and a record low of 47.20 in September of 2015. Manufacturing PMI in China is reported by Markit Economics.

In China, the Caixin Manufacturing PMI Purchasing Managers’ Index measures the performance of the manufacturing sector and is derived from a survey of private 430 industrial companies. The Manufacturing Purchasing Managers Index is based on five individual indexes with the following weights: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stock of Items Purchased (10 per cent), with the Delivery Times index inverted so that it moves in a comparable direction. A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change.