Macro Flash: Surveys show China’s recovery is strong but uneven

Key takeaways

The released Official China NBS/CFLP PMI and the Caixin/IHS Markit PMI for August showed both that the Chinese economy was undergoing a robust growth recovery in August. However, the Official PMI shows that the economic recovery is uneven and is driven first and foremost by large manufacturing enterprises and by the construction sector., which benefited the most from the fiscal and monetary stimulus measures. Export orders continued their recovery initiated in June but the major driver of growth was domestic demand. Employment remained muted as companies still face uncertainties related to the COVI19 pandemic and its impact on economies across the world. Expectations remain anchored at a high level, although they edged lower compared to July and June.

Detailed Analysis

Official NBS/CFLP PMI for August

Source: National Bureau of Statistics / China Federation of Logistics and Purchasing(CFLP)

In August 2020, the comprehensive PMI output index – calculated by weighted summation of the manufacturing output index and non-manufacturing business activity index according to the two sectors relative weights in GDP – was 54.5 percent, up 0.4 percentage point over July 2020.

China’s Official Manufacturing PMI (Seasonally Adjusted)

In August 2020, China’s Official Manufacturing Purchasing Managers Index (PMI) was 51.0 percent showing a steady expansion. According to China’s NBS, the PMI of large enterprises was 52.0, unchanged with last month, that of medium enterprises was 51.6 percent, rose by 0.4 percentage point over last month; that of small enterprises was 47.7 percent, fell 0.9 percentage point over last month. The production index, new orders index, and supplier distribution time index were all above the threshold, while the main raw materials inventory index and the employment index stayed below the 50 threshold, respectively at 47.3 and 49.4.

More specifically, the employment index of ‘large enterprises’ stayed above the neutral level of 50 at 50.1 in August. Meanwhile, the employment indices of ‘medium enterprises’ and ‘small enterprises’ remained in the contractionary zone, registering 49.1 and 48.0 respectively in the month. This could indicate that the economic recovery is uneven and is driven first and foremost by large enterprises which benefit the most from the fiscal and monetary stimulus measures that have been enacted by the Chinese authorities to counter the impact of the COVID19 crisis.

Business Confidence in the manufacturing sector, as measured by the Expectations index remained at an elevated level of 58.6. More specifically, expectations for large enterprises showed at 60.6 in August, while the related figures for medium enterprises’ and ‘small enterprises’ were 58.3 and 53.8 respectively.

	PMI	Production	New Orders	Raw  Materials  Inventory	Employment	Supplier Delivery Time	New Export  Orders	Producer  Price  Index	Expectations  Index
Jan-20	50	51,3	51,4	47,1	47,5	49,9	48,7	49	57,9
Feb-20	35,7	27,8	29,3	33,9	31,8	32,1	28,7	44,3	41,8
Mar-20	52	54,1	52	49	50,9	48,2	46,4	43,8	54,4
Apr-20	50,8	53,7	50,2	48,2	50,2	50,1	33,5	42,2	54
May-20	50,6	53,2	50,9	47,3	49,4	50,5	35,3	48,7	57,9
Jun-20	50,9	53,9	51,4	47,6	49,1	50,5	42,6	52,4	57,5
Jul-20	51,1	54	51,7	47,9	49,3	50,4	48,4	52,2	57,8
Aug-20	51	53,5	52	47,3	49,4	50,4	49,1	53,2	58,6

NBS/CFLP Non Manufacturing PMI

In August by the 2020, China’s non-manufacturing business activities index was 55.2 percent, rising for the sixth consecutive month above the 50 threshold. Business confidence as measured by the Expectations index came strong at 62.1 almost same as in July indicating that Non manufacturing Businesses expect a strong economic upturn over the coming months. According to the sector level information detailed by China’s NBS in the detailed report (in Chinese),

Non manufacturing growth is driven by the Construction sector which showed a very strong activity level (60.2), a high new orders reading at 56.4 percent – higher 1.8 percentage points over the July figure – employment at 54.2 – against a lacklustre services employment index at 47.2 – and a particularly strong Business Expectations index at 66.6, on the back of the stimulus measures undertaken by the local and central authorities.

	PMI	New  Orders  Index	Input  Price  Index	Sales  Price  Index	Employment  Index	Expectations  Index	Foreign  New  Orders	Unfilled Orders Index	Stock  Index	Supplier Delivery Time Index
Jan-20	54,1	50,6	53,3	50,5	48,6	59,6	48,4	43,6	47,2	52,1
Feb-20	29,6	26,5	49,3	43,9	37,9	40	26,8	35,2	39,3	28,3
Mar-20	52,3	49,2	49,4	46,1	47,7	57,3	38,6	43	46,1	46,4
Apr-20	53,2	52,1	49	45,4	48,6	60,1	35,5	43,4	47	51
May-20	53,6	52,6	52	48,6	48,5	63,9	41,3	44,3	47,8	52,9
Jun-20	54,4	52,7	52,9	49,5	48,7	60,3	43,3	44,8	48	52,1
Jul-20	54,2	51,5	53	50,1	48,1	62,2	44,5	44,9	48,1	51,9
Aug-20	55,2	52,3	51,9	52,3	48,3	62,1	45,1	44,6	48,5	52,4

Caijing/IHS Markit PMI for August

Readings from Caixin’s Manufacturing and Non Manufacturing PMIs Surveys for August show somewhat contrasting results with the Official PMI figures compiled by China’s National Bureau of Statistics alongside China’s Federation of Logistics and Purchasing.

China Caixin Manufacturing PMI for August

The Caixin Manufacturing PMI came in firmly expansionary territory in August with a 53,1 reading slightly stronger than July’s 52,8. This was supported by strong Output, New Orders and Future Output (Expectations) indexes. Although the Expectations index edged down to a three-month low from its June and July levels it remained robust, showing a remarkably sustained optimism among Chinese manufacturers especially considering the prevailing economic uncertainties at the global level. The New Exports orders index also continued to recover over the June-August period, in line with the evolution of its counterpart in the NBS/CFLP Manufacturing PMI. The Caixin New Exports index which focuses more on private companies and SMEs than its official counterpart which is tilted toward large SOEs, has come slightly above the 50 neutral level, for the first time since the beginning of the year. This shall be related to the recovery in global trade as illustrated by figures UNCTAD. The competitive environment remains however tense with input prices rising more than output prices which remained subdued. Should this trend continue, this could translate into increased pressures on margins and less prospect for productive capacity accumulation going forward.

	PMI	Output	New Orders	New Exports Orders	Future Output	Employ- ment	Backlogs of work	Stocks of Finished Goods	Input Prices	Output Prices	Export Charges
Mar-20	50,1	50,6	47,7	46,4	59,8	48,6	55,8	51	49,6	48,1	49,3
Apr-20	49,4	51,1	47,6	33,7	54,8	47,7	53,4	50,8	48	48	48,4
May-20	50,7	54	49,7	41,7	58,1	49,2	49,2	48,6	48,5	50,1	48,9
Jun-20	51,2	52,8	52,1	47	59,9	48,6	50,9	49,7	52,6	50,4	50,3
Jul-20	52,8	54,9	54,4	48,3	58,9	49,5	52,4	49,5	54,7	52,1	50,5
Aug-20	53,1	56,2	54,6	50,7	58,7	49,8	52,8	50,3	53,2	51,8	50,4

Caixin China Services PMI

The Caijing Services PMI showed a healthy positive figure in August but the overall downward direction could signal a slowdown in the services sector’s growth all the more illustrated by the sharp reduction of the New Orders index over June-August period even though the later remains in positive territory. This could be explained by the slowdown of domestic demand with muted disposable income growth in the first half of the year, compounded by a decrease in consumer expenditure. Indeed, according to China’s National Bureau of Statistics, “In the first half year, the per capita consumption expenditure of the whole country was 9,718 yuan, a nominal decrease of 5.9 percent over the same period of last year. After deducting the price factor, the actual decrease was 9.3 percent. Among them, the per capita consumption expenditure of urban residents was 12,485 yuan, a decrease of 8.0 percent, after deducting the price factor, the actual decrease was 11.2 percent; the per capita consumption expenditure of rural residents was 6,209 yuan, decreased by 1.6 percent, after deducting the price factor, the actual decrease was 6.0 percent.“

	Output	New Orders	New Exports Orders	Future Output	Employ- ment	Backlogs of work	Input Prices	Output Prices
Mar-20	43	45,8	40,7	53,2	48	47,6	52,5	47,4
Apr-20	44,4	48,4	38,1	57,9	47,5	47,4	50,1	48,4
May-20	55	55,8	44,4	57	48,9	49,1	49,9	48,3
Jun-20	58,4	57,3	52	60,4	48,2	50,6	49,5	50,1
Jul-20	54,1	55,3	46,6	62	49,4	51,2	51,2	49,4
Aug-20	54	52,9	49,1	58,7	50,8	49,8	52,4	51,2

Caixin China Composite PMI

The Caijin Composite PMI reflects the combination of trends in the manufacturing and services sector with the former showing a continuation of a robust recovery while the latter shows signs of softening. Overall the Chinese economy is still in firmly robust expansion territory and Expectations about Future Output remain anchored at a high level. However, this did not translate into a marked improvement for employment. The surge in input prices and contained growth of output prices could impact margins going forward should this trend continue over the next few months.

	Output	New Orders	New Exports Orders	Future Output	Employ- ment	Backlogs of work	Input Prices	Output Prices
Mar-20	46,7	46,7	45,9	56,3	48,3	51,5	51,1	47,7
Apr-20	47,6	48	34,1	56,4	47,6	50,3	49,1	48,2
May-20	54,5	52,9	41,9	57,5	49,1	49,1	49,2	49,2
Jun-20	55,7	54,8	47,5	60,1	48,4	50,7	51	50,2
Jul-20	54,5	54,9	48,2	60,5	49,4	51,8	42,9	50,7
Aug-20	55,1	53,7	50,6	58,7	50,3	51,2	52,8	51,5