PMI proves positive
WHILE JULY’S DATA SUGGESTED THAT THE CHInese economy could be bottoming out, the strong rise in the flash HSBC Purchasing Managers’ Index, released on Thursday, testifies that it is recovering.
The preliminary HSBC reading for August hit a four-month high of 50.1, up from a final reading of 47.7 in July. The final HSBC PMI reading had been below 50, signaling contraction, for three consecutive months, in stark contrast with the above-50 official PMI reading. The fact that both indexes are now above 50 agrees with other signs that the economy is shaking off its earlier sluggishness.
Seen from indicators released in the past weeks, such as the better-than-expected industrial production, stable retail sales and recovering trade data for July, the Chinese economy has shown some signs of stabilization. The rising flash HSBC reading further reinforces that trend.
It also shows that China’s recent pro-growth policies, such as increased infrastructure investment and temporary elimination of sales and value-added taxes for small enterprises, are starting to work.
As the effect of those policies unfolds, the economy could further pick up in the coming months, helping the country reach its year-on-year GDP growth target of 7.5 percent for this year.
Seen from the sub-indexes of the HSBC index, the pick-up in the new orders is a boost to confidence because it shows the corporate sector is benefiting from the economic recovery, which will in turn further contribute to the continuity of the upward economic trend.
The sub-index measuring new export orders, however, remains low, indicating external demand is still weak.
The global economy continues to wallow in the mire, with European economies still far from resolving their debt crises while the emerging-market economies, particularly India and Indonesia, are having to cope with the challenges resulting from the United States’ planned withdrawal from its bond-buying stimulus measures.
Although the Federal Open Market Committee meeting at the end of July offered few clues as to when the Fed will wind down its $85 billion a month stimulus program, it made clear it is only a matter of when, not if.
This indicates that the US’ economic prospects could further improve on the back of the dropping unemployment rate and stronger-than-expected home and retail sales, which may provide a mild boost to Chinese exporters.