Economic Highlights (China) - 02/05/2014

China: Official Manufacturing PMI Improved Marginally in April

• China’s official manufacturing PMI rose marginally for the second consecutive month in Apr, rising from 50.3 in Mar to 50.4 (OSK-DMG, consensus: 50.5), suggesting that growth in the economy remained relatively modest though there are signs of stronger demand in the domestic market following recent policy measures to boost infrastructure investment and stabilize growth.

• New orders rose to the highest level in four months in Apr, with the sub-index increasing markedly from 50.6 in Mar to 51.2 while external demand turned sluggish. New export orders returned to contraction, dropping from 50.1 in Mar to 49.1 in Apr after having advanced in the prior month. The renewed fall in new orders from overseas suggested that manufacturers continued to face an uncertain export environment despite recent indications of improvement in the major advanced economies. Output sub-index meanwhile fell by 0.2-pts MoM to a nine-month low of 52.5 as manufacturers reduced output growth and drew down the stocks of finished goods, which fell from 48.3 in Mar to 47.3 in Apr.

• Nevertheless, purchasing activity increased for the second month running, with the purchases of inputs index up from 50.3 in Mar to 50.6 in Apr, its highest level in three months. The stocks of major inputs index also rose from 47.8 in Mar to 48.1 during Apr, in line with the increase in input buying. The rate of job losses meanwhile remained unchanged as the employment sub-index stood at 48.3 for the second successive month in Apr. Although companies remained optimistic about prospects for the months ahead, business confidence weakened slightly, likely affected by the weakness in external demand. The business expectations sub-index dropped from 62.7 in Mar to 59.6, despite the latest reading still indicating a strong degree of positive sentiment. Meanwhile, the input prices index rose from 44.4 in Mar to 48.3 in Apr following three consecutive months of declines, partly reflecting the pickup in demand at home.

• Overall, Apr official PMI continued to point to a growing manufacturing sector in China although the pace of expansion remained modest. The outlook for the sector appeared mixed. On the positive side, leading indicators such as new orders and new orders-to-finished goods inventory suggest improving prospects in the coming quarter. On the other hand, there remained some downside risk as manufacturers continued to face slackness in foreign orders. Despite the continuous external demand weakness, we believe China’s manufacturing growth and economy are likely to stabilize and improve in the months ahead as recent measures to boost domestic investment and economic activity take more effects.

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