Download Flash Note China: June PMI

FLASH NOTE
Flash Note
China: June PMI
Manufacturing activity declines slightly, but nonmanufacturing activity rises on strong construction
Pictet Wealth Management - Asset Allocation & Macro Research | 4 July 2016
Manufacturing PMIs declined in June,
while non-manufacturing PMI rose
thanks to strong construction activity.
The PMI figures show activity at large
companies much stronger than for
smaller companies.
While the growth in construction
activity remained strong in June, it may
well drop in the coming months as
government stimulus eases.
Overall, the June PMI readings are
consistent with our forecast for 6.5%
GDP growth in China this year.
China’s official manufacturing purchasing managers’ index (PMI) declined
slightly in June and stood right at the 50 threshold that separates expansion
from contraction. The Caixin manufacturing PMI also fell in June from the
previous month. The non-manufacturing PMI rose in June due to strong
construction activity. We expect China’s economy to continue to muddle
through for the rest of the year with the help of continued government
support. We maintain our forecast of 6.5% GDP growth for 2016.
Manufacturing activity may slow down after a few months
recovery
China’s official manufacturing PMI, complied by the National Bureau of
Statistics (NBS) and the China Federation of Logistics and Purchasing,
dropped slightly to 50 in June from 50.1 in May. The June Caixin PMI
declined to 48.6 from 49.2 the previous month.
While the output sub-index of the official PMI continues to be strong (52.5
in June vs. 52.3 in May), the indices for new orders (50.5 in June vs. 50.7 in
May) and new export orders (49.6 in June vs. 50 in May) have been
declining. This suggests that manufacturing activity may slow down in the
coming months after recovering in March through May.
INDEX
OFFICIAL MANUFACTURING PMI
58
CAIXIN MANUFACTURING PMI
56
50 THRESHOLD
54
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52
50
48
46
2010
Source: W ind
2011
2012
2013
2014
2015
2016
The divergence in activity between large companies and
SMEs indicates a tougher environment for the private sector
The official survey shows that large enterprises are doing significantly
better than medium and small enterprises (SMEs). PMI for large enterprises
rose by 0.7 points to 51 in June. By contrast, the PMI for medium-sized
enterprises dropped by 1.4 points to 49.1 and that for small enterprises by
1.2 points to 47.4.
This divergence is consistent with the discrepancy observed between the
official PMI, whose sample covers more large state-owned enterprises
(SOEs), and the Caixin PMI, whose coverage tilts towards private-sector
SMEs. The underperformance of SMEs reflects the tougher environment
that the private sector currently faces, which is also illustrated by the much
weaker growth in fixed asset investment in the private-sector in recent
months.
CHART 2: CHINA MANUFACTURING PMI BY TYPE OF ENTERPRISE
INDEX
56
54
LARGE ENTERPRISES
MEDIUM-SIZED ENTERPRISES
SMALL ENTERPRISES
50 THRESHOLD
52
50
48
46
44
2012
2013
2014
2015
2016
Source: W ind
Non-manufacturing PMI rose on strong construction
activities
China’s growth recovery in the first half of 2016 was largely the result of the
monetary and fiscal stimulus by the government that started late last year and
that was reflected in strong construction activity in both the infrastructure and
the property sectors. The latest non-manufacturing PMI indicates that
momentum in construction remains strong for the moment.
However, there are clear signs that government stimulus eased off in the
second quarter. Bank lending and total social financing (TSF) have both
seen their growth rate drop quite noticeably compared to Q1. The property
market has also cooled a bit in recent months. As a consequence, while it is
still strong, construction activity may ease somewhat in the coming months.
4 July 2016 | FLASH NOTE – Chinese PMI | PAGE 2
Overall, the June PMI readings are consistent with our expectation of
China’s near-term growth trajectory. The economy will likely continue to
muddle through for the rest of the year with support from the government
so that we are maintaining our forecast of 6.5% of real GDP growth for
China in 2016.
CHART 3: CHINA NON-MANUFACTURING PMI
INDEX
66
NON-MANUFACTURING PMI:
CONSTRUCTION
64
62
60
58
56
54
52
50
2012
2013
2014
2015
2016
Source: W ind
4 July 2016 | FLASH NOTE – Chinese PMI | PAGE 3