China: PMIs show some loss of traction in growth momentum – UOB

Economist at UOB Group Ho Woei Chen, CFA, assess the latest release of PMI figures in the Chinese economy.

Key Takeaways

“China’s official Purchasing Manager’s Indexes (PMIs) softened further in August with the non-manufacturing PMI unexpectedly falling into contraction (defined as a reading below 50) for the first time since March 2020. The manufacturing PMI was also weaker than expected but has nonetheless remained in the expansion territory as strong external demand continued to cushion China’s economy.”

“The slump in non-manufacturing PMI partly reflected a more severe than expected impact from the local COVID-19 outbreaks which have since eased as the number of high-risk areas reported by the authorities returned to zero. However, headwinds from tightening regulation and China’s zero tolerance to COVID-19 infections will further weaken the outlook for domestic demand.”

“The non-manufacturing PMI from China Federation of Logistics & Purchasing (CFLP) slumped 5.8 pt to 47.5 in August (Bloomberg est: 52.0, Jul: 53.3), its first contraction since the first COVID-19 outbreak last year.”

“The CFLP manufacturing PMI has been falling in the past five months. The reading fell 0.3 pt to 50.1 in August (Bloomberg est: 50.2; Jul: 50.4). Although the manufacturing PMI is now at its lowest since China’s recovery from its massive pandemic outbreak in early-2020, it is still in the expansionary territory. The resilience in external demand remains the key support for sustained economic recovery in China.”