December Chinese manufacturing slips to three month low

December Chinese manufacturing slipped to 50.5 compared to 50.8 November, according to a new HSBC/Markit Flash China Manufacturing PMI (Purchasing Managers’ Index) released to today.

The new figures show that China’s economic recovery is still fragile.

This does not mean manufacturing has contracted, it is still expanding, but at a slower rate than the previous month, and also more moderately than most economists had expected. The PMI index uses a 100-point scale. Any number over 50 represents expansion.

During the second quarter of this year, Chinese economic growth fell to 7.5%, the slowest rate in nearly two decades. In the third quarter GDP growth reached 7.8%.

December Chinese manufacturing still above average for 3Q

HSBC economist Qu Hongbin said:

”The December HSCB Flash China Manufacturing PMI reading slowed marginally from November’s final reading. But it still stands above the average reading for 3Q, implying that the recovering trend of the manufacturing sector starting from July still holds up.”

“As a result, we expect China’s GDP growth to stabilize around 7.8% (year-on-year) in 4Q.”

This flash December Chinese PMI covers a short period – from December 5th to 12th – because of the approaching holiday season. The final and adjusted PMI will be published in January 2nd, 2014.

Of the economists who had predicted a slowdown in the Chinese factory sector during this quarter, the majority believe it is due to more moderate credit growth and less restocking.

December Chinese manufacturing index might be inaccurate

HSBC emphasized that this is a ‘Flash’ reading representing just one quarter of December.

Rob Minto wrote in the Financial Times “The flash reading is proving to be quite a volatile guide to the final PMI figure.”

A flash reading takes in between 85% and 90% of the final PMI responses. September’s flash reading was 1 full point higher than the month’s final PMI, October was the same, while November’s was 0.4 points lower.

Bloomberg News quoted Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole CIB, Hong Kong, who said “The reading confirms our view that Chinese GDP growth is already decelerating.” He forecasts Chinese GDP growth of 7.2% for 2014, compared to 7.7% for 2013.

The Purchasing Managers’ Index (PMI) is a composite index based on five individual indexes, listed below according to their weight:

  • New orders – 0.3
  • Output – 0.25
  • Employment – 0.2
  • Suppliers’ delivery times – 0.15
  • Stock of items purchased – 0.1

Earlier this month, the General Administration of Customs in China reported a November trade surplus of $33.8 billion, its highest monthly surplus since January 2009.