JAKARTA - IHS Global Insight China economist Brian Jackson provides latest updates on China’s manufacturing industry. He said after securing a decent Q1 growth reading at a great cost, officials may pivot towards risk control in Q2.
Following is the highlights of his review:
Key points:
- China’s official manufacturing purchasing managers’ index (PMI) barely grew in April, a marginal deceleration from a month prior. All sub-indices worsened relative to a month prior, including the rate of output growth, with one exception. Prices of purchased materials accelerated, growing at the fastest pace since May 2011. Small firms bore the brunt of the deterioration, contracting at a faster pace.
- An official press release noted that consumer goods, such as processed food, beverages, pharmaceuticals and automobiles, continue to outperform.
- Official non-manufacturing PMI also grew at a slower pace. New orders shifted from expansion to contraction, and new export orders contracted at a faster pace. Prices charged expanded less rapidly, while input prices expanded more rapidly, squeezing margins. One the positive, employment contracted at a slower pace and expectations for future activity rose marginally.
- A services sub-index fell 0.6 to 52.5, while a construction sub-index rose 1.4 to 59.4. An official press release highlighted that within services activity was especially weak for wholesaling, freight shipping, catering, insurance and household services.
IHS Global Insight Views :
Producer prices will rise, while consumer prices will moderate. Rising prices in manufacturing PMI point to continued improvements in the producer price index (PPI), although weakening output prices among service providers indicate the consumer price index (CPI) may lose some momentum. China’s National Bureau of Statistics (NBS) publishes PPI and CPI on 10 May.
Industrial output will come back down to Earth. Industrial output surged 6.8% in March. We view that acceleration as an aberration, and the slowdown in manufacturing PMI output in April indicates this figure will moderate when the NBS publishes April data on 15 May.
Overall, April PMI is consistent with our expectations that the March bounce in most Chinese data is not durable. The government paid for that improvement via a flood of credit, additional investment in capital intensive state-led infrastructure projects, and easing policies in the housing market. None of these can be sustained at the current pace in the medium term, and we expect growth indicators will moderate in the second quarter and half of 2016 as some (not all) of these efforts moderate and officials begin to rebalance towards risk control.