China: PMIs are even more bad news

By Sober Look

The widely followed Markit PMI report of China’s manufacturing for July was disappointing, coming in at an 11 months low.

Source: Econoday

Growth across developing economies has become a problem, and China is no exception.

Source: Markit/HSBC

HSBC: – The lower reading of the July HSBC Flash China Manufacturing PMI suggests a continuous slowdown in manufacturing sectors thanks to weaker new orders and faster destocking. This adds more pressure on the labour market. As Beijing has recently stressed to secure the minimum level of growth required to ensure stable employment, the flash PMI reinforces the need to introduce additional fine-tuning measures to stabilise growth.

The “fine-tuning” that HSBC is referring to is some type of stimulus from Beijing. The PBoC however has trouble introducing additional liquidity. The central bank views such action as conducive to more shadow banking, which the authorities have been trying to curb (see post). Any significant “fine-tuning” is therefore unlikely – in fact money market rates are no longer declining (chart below). With exports remaining weak (see post) and no central bank easing, growth is expected to be anemic – at least by China standards.