China's manufacturing future

China’s economy is slowing. That much has become clear recently with the most recent trade data, and the collapse in exports, supporting the earlier case made by the Markit manufacturing PMI and other partial indicators.

But even against a backdrop of scepticism over the pace of Chinese economic growth, this morning’s Caixin Markit ‘flash’ manufacturing PMI was a surprisingly weak result compared to analysts forecasts.

With a print of 47.1 the manufacturing PMI fell from 47.8 last month and was much weaker than the 47.7 analysts in the Reuters poll expected. That took the PMI to a 77-month low – the depths of the GFC. The associated manufacturing output index was also weaker, printing 46.6 against July’s 47.1.

The summary break up of the data supports the notion that authorities and the PBOC have a lot of work to do given that most indicators are falling at an accelerated rate. Inflation indicators are also flashing a warning signal with prices for inputs and outputs also falling.

Dr He Fan, chief economist at Caixin Insight Group, tried to put a positive light on the release saying that even though the PMI fell further from July’s two-year low “the likelihood of a systemic risk remains under control and the structure of the economy is still improving.” But he added: “There is still pressure on the front of maintaining growth rates, and to realize the goal set for this year the government needs to fine tune fiscal and monetary policies to ensure macroeconomic stability and speed up the structural reform.”