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China Economy

Disappointing July official PMI data hits China’s stock markets but Hong Kong shrugs it off

Official PMI lower than expected as country hit by floods, though private firms mark first growth in 17 months

PUBLISHED : Monday, 01 August, 2016, 11:00am
UPDATED : Monday, 01 August, 2016, 11:40pm

Manufacturing at China’s big state-owned firms, hit by flooding, contracted in July, while private manufacturers’ activities brought cheer as they marked their first expansion since February 2015, two surveys showed on Monday.

China’s official manufacturing PMI – or purchasing managers’ index, which reflects conditions in largely state-owned manufacturers – came in slightly lower than expected at 49.9 last month, down from the previous month’s reading of 50.0, according to the National Bureau of Statistics.

China July official PMI likely to show factories struggling for traction

In contrast, the Caixin manufacturing PMI – which tracks small and medium-sized businesses – came in at a surprising 50.6, up significantly by 2 points from its June reading and signalling expansion for the first time in 17 months. Its sub-indexes of output, new orders and inventory all surged past the 50-point mark that separates growth from decline.

The disappointing official PMI data hit China’s stock markets hard on Monday morning, but Hong Kong’s markets shrugged off the news, rising slightly.

The Shanghai Composite Index dropped 1.25 per cent or 37 points to 2942 as end of morning session while the CSI 300 – which tracks large caps listed in Shanghai and Shenzhen – dropped 1.13 per cent or 36 points to 3167.

China’s softening PMI data suggests growth has peaked and capital outflows may revive

The Shenzhen Composite Index fell 1.94 per cent or 200 points to 10129 while the Nasdaq-style ChiNext plunged 2 per cent or 42 points to 2079.

The manufacturing sector led the losses, with its sub-index down 2.18 per cent.

The Hong Kong markets, on the other hand, dismissed the worse-than-expected data, with the Hang Seng Index rising 1.31 per cent to 22178 in the morning trading session.

China’s soft official PMI data suggested that manufacturing activities had been affected by the recent floods across the country and weaker growth in market demand, said Zhao Qinghe, a senior statistician at the statistics bureau.

The official non-manufacturing PMI, on the other hand, edged up 0.2 percentage points to 53.9 last month, signalling gaining traction in the services industry.

Economists said the weak official PMI data indicated bumpy economic conditions in the second half of the year, as they urged Beijing to roll out more stimulus measures.

“Today’s data does not bode well for GDP (gross domestic product) growth in the second half,” ANZ said in a research note on Monday. “We expect the authorities to maintain an accommodative monetary policy.”

Growth in China’s factory sector stalls, increasing chance of more stimulus measures to boost economy

As deleveraging remained a policy priority, fiscal policy was expected to take the lead in boosting growth in the second half of the year, the bank said.

“At the end of the day, in order to deliver decent growth, China needs to boost the domestic demand via fiscal spending,” Zhou Hao, a senior emerging-markets economist at Commerzbank AG, said.

On the unexpected improvement in the Caixin manufacturing PMI, Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group said: “This indicates that the Chinese economy has begun to show signs of stabilising due to the gradual implementation of proactive fiscal policy. But the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued.”