China: Mixed PMIs Still Suggest That Growth Is Picking Up

China's manufacturing PMIs in January were mixed but on balance still suggest growth is accelerating moderately and GDP growth could be close to 9% q/q AR in Q1. The NBS manufacturing PMI in January declined slightly to 50.4 from 50.6 in December, primarily driven by weaker production and inventory cuts, while new orders continued to improve slightly.

The HSBC manufacturing PMI in its final estimate was revised markedly higher and now shows an improvement to 52.3 from 51.5 in January. The details in the HSBC PMI remain very strong with new orders and export orders improving and finished goods orders declining slightly, suggesting continued improvements in the coming months. We expect the manufacturing PMIs to peak around 53 in late Q2.

Details
The manufacturing PMI released by China’s National Bureau of Statistics (NBS) in January declined slightly to 50.4 (Cons: 51.0, DB: 51.2) from 50.6 in December and hence came in weaker than expected. The details were more encouraging with new orders improving slightly from 51.2 to 51.6 and the finished goods inventory component declining markedly to 47.4 from 49.4. Hence, the new order-inventory-balance continues to improve, suggesting the NBS manufacturing PMI remains on a moderate recovery trend despite the slight disappointment in January.

The HSBC manufacturing PMI continues to give a more bullish growth signal than the NBS manufacturing PMI. In January, the HSBC manufacturing PMI in its final reading improved to 52.3 (revised up from 51.9 in preliminary estimate) from 51.5 in December. The upward revision was mainly driven by stronger new orders, so the details are now also substantially stronger. New orders in the final reading improved to 53.7 (revised up from 52.7) from 52.9 in December. The finished goods inventory component declined slightly to 49.6 from 49.8 and hence the new order-inventory balance also improved in the HSBC manufacturing PMI. Export orders in the HSBC manufacturing PMI also improved moderately to 50.5 from 49.2 in December.

What explains the difference between the bullish growth signal in the HSBC manufacturing PMI and the more subdued message in the NBS manufacturing PMI? In general it is believed that the sample used in the HSBC manufacturing PMI is skewed towards smaller private and export-oriented manufacturers, while in the NBS manufacturing PMI the sample is skewed towards major state-owned enterprises within heavy industry. We cannot completely rule out that there has been an impact from the air pollution that has hit parts of northern China, which forced the government to close major factories temporarily to ease air pollution in for example the Beijing area. This would be consistent with weakness primarily driven by weaker production and inventory cuts as seen in the NBS manufacturing PMI.

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