China: HSBC PMI Falls In December, But Details Resilient

The flash estimate for the Markit/HSBC manufacturing PMI in December declined slightly to 50.5 (consensus: 50.9, DBM: 51.0) from a final reading of 50.8 in November.

The details remained relatively resilient in December with new orders increasing marginally to 51.8 from 51.7 in November and export orders also improving slightly to 50.3 from 50.2. The decline in the HSBC manufacturing PMI in December was primarily driven by a drop in current output to 51.5 in December from 52.2 in November.

The finished goods inventory component increased slightly to 50.0 from 49.7. Inventories of purchases were cut at a faster pace in December with the purchase of inputs inventory component declining to 48.7 from 49.5. The new order-inventory balance was broadly unchanged and hence currently gives no clear short-term direction for the movement in manufacturing in the coming months (see chart on p2).

The output price component declined to 49.1 from 50.3 and so far there does not appear to be severe inflationary pressure (see chart on p2).

It is too early to conclude that China has already entered a new deceleration phase. New orders continue to improve (albeit only slightly) and the leading indicator still suggests that the manufacturing PMI should improve slightly in the coming months (see chart). However, China's manufacturing PMIs are probably close to a peak. Our view remains that China's manufacturing PMIs will peak in Q1 14 but admittedly there are no signals that the manufacturing PMIs will move markedly higher in the coming months. Regarding the current quarter, we still expect GDP growth to be 7.8% y/y, unchanged from Q3. We expect GDP growth to peak in Q1 14 and slow moderately from Q2 14.

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