China: HSBC PMI At Highest Level In Two Years

China's HSBC manufacturing PMI in January improved to 51.9 from 51.5 and is now at the highest level since January 2011. New orders declined marginally to 52.7, while export orders jumped above 50. Despite the improvement in export orders, the HSBC still suggests a recovery driven mainly by domestic demand.

The HSBC manufacturing PMI suggests that growth continued to improve moderately into Q1 13. Manufacturing PMIs around 52 suggest GDP growth around 9% q/q AR. We expect the manufacturing PMIs to continue to improve in the coming months and peak around 53 in late Q2.

In the recent month there has been a considerable discussion about the reliability of the Chinese foreign trade data after China released unexpected strong export data for December. The Chinese foreign trade data have always been volatile on a month-on-month basis but if we look through short-term volatility, the development in China’s exports in recent months overall appears to be consistent with the development in export orders in the HSBC manufacturing PMI (see chart).

Purchase of inputs in January improved substantially to 54.2 from 53.2 in December last year. Purchase of inputs is one of the best indicators for China’s import growth and hence we currently have a strong signal that China’s import growth is poised to pick up in the coming months.(see chart on next page).

Assessment & Outlook
Historically, manufacturing PMIs around 52 have suggested GDP growth around 9% q/q, so overall the HSCBC manufacturing PMI appears to consistent with our view that GDPgrowth will be 8.8% q/q AR in Q1 13, possibly even with a little upside risk. We expect the manufacturing PMIs to continue to improve moderately in the coming months,peaking around 53 in late Q2 13.

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