China PMIs (Jan.) - Capital Economics
China Economics

China PMIs (Jan.)

China Data Response
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The latest surveys suggest that the pace of expansion in the manufacturing sector slowed in January. But that’s not too surprising given that output was already well above trend – capacity utilisation rates in industry hit an eight-year high last quarter. Despite the slowdown, we think activity will remain strong in the near-term.

Industrial rebound shifts down a gear

  • The latest surveys suggest that the pace of expansion in the manufacturing sector slowed in January. But that’s not too surprising given that output was already well above trend – capacity utilisation rates in industry hit an eight-year high last quarter. Despite the slowdown, we think activity will remain strong in the near-term.
  • The Caixin manufacturing PMI continued its decline in January, falling from 53.0 in December to 51.5 (the Bloomberg consensus was 52.6 and our forecast was 52.5). This is the largest decline since the coronavirus hit last year. The official survey released yesterday also fell from 51.9 to 51.3 (both Bloomberg and CE 51.5). The average of the two fell by the most since February. (See Chart 1.)
  • Averaged across both PMIs, all components apart from the delivery times measure weakened slightly. (See Chart 2.) Firms are reporting the longest delivery times since factories were closed last March, a sign that capacity constraints are partly to blame for slower rises in output. The export orders component decreased in both surveys, with the Caixin index falling under 50 for the first time since last July, which suggests that the recent strength of exports may be levelling off. (See Chart 3.)
  • Meanwhile, the official non-manufacturing PMI released yesterday also fell from 55.7 to 52.4, its largest decline since the coronavirus hit last year (both Bloomberg and CE 55.0). (See Chart 4.) This was driven by a fall in the services index from 54.8 to 51.1. This suggests that renewed virus flare-ups across several provinces weighed on services activity last month. Meanwhile, the construction index declined from 60.7 to 60.0, as tougher restrictions on borrowing started to weigh on the property sector. As a result, the official composite PMI fell to 52.8, its lowest since last March.
  • The survey data suggest that China’s rebound from the COVID-19 downturn is levelling off. But the economy is still likely to remain above trend for a while. In particular, the recovery in services activity should resume before long given that the latest virus outbreak appears to be coming under control. And in the meantime, manufacturing output is likely to be unseasonably strong this month due to travel restrictions keeping workers on the job. Meanwhile, flattering base effects from the weakness in Q1 last year will ensure that year-on-year growth rates rise further in the coming months.

Chart 1: Headline Manufacturing PMIs

Chart 2: Manu. PMIs – Contr. to Change
(Official and Caixin simple ave.)

Sources: CEIC, Markit, Capital Economics

Sources: CEIC, Markit, Capital Economics

Chart 3: PMIs – Export Orders

Chart 4: Official Non-manufacturing PMI

Sources: CEIC, Markit, Capital Economics

Sources: CEIC, Capital Economics


Julian Evans-Pritchard, Senior China Economist, julian.evans-pritchard@capitaleconomics.com
Sheana Yue, Assistant Economist, sheana.yue@capitaleconomics.com