China: April PMIs point to imbalances and supply-side dominance

China Macro: Both manufacturing PMIs remain in expansion territory

Earlier today, China’s manufacturing PMIs for April came in slightly better than expected, both staying above the neutral 50 mark separating expansion from contraction. The official PMI published by NBS dropped back to 50.4 (March: 50.8, consensus: 50.3). This followed a jump in March that brought the index back in expansion territory for the first time since September 2023 and closed the gap with the equivalent index from Caixin. Caixin’s manufacturing PMI rose further to a fourteen month high of 51.4 in April (March: 51.1, consensus: 51.0). Looking at the various sub-indices of both surveys, the output components rose to the highest levels in around one year. The picture for the demand components was more mixed. The subindices for domestic orders and export orders both fell back in the NBS survey, but rose sharply in Caixin’s survey (which has a stronger focus on private, and export-oriented firms). All in all, the supply side still looks stronger than the demand side in China, as domestic demand is still being impacted by spillovers from the real estate troubles. As we highlighted before, this partly reflects the way Beijing is implementing policy stimulus, which is more directed at the supply side than the demand side. Meanwhile, China’s supply abundance helps keeping global goods inflation in check, but at the same time it is contributing to trade spats (see our April Global Monthly for more background).

Official non-manufacturing PMI drops back by almost two points

Meanwhile, the official non-manufacturing PMI – which covers the services and construction sectors – came in clearly weaker than expected. This index dropped by almost two full points to a three month low of 51.2 (March: 53.0, consensus: 52.3), offsetting the jump seen one month earlier. This decline was driven by the services sectors, with the subindex for services falling back to 50.3 (March: 52.4). The subindex for construction remained well above the neutral mark, at 56.3 (March: 56.2). Meanwhile, the official composite PMI (a weighted average of the output components in the manufacturing and non-manufacturing survey) slid back to 51.7, after having risen to a 10-month high of 52.7 last month. Caixin’s services and composite PMIs will be published on Monday 6 May. All in all, the April PMIs so far confirm the picture of an economic recovery that is still imbalanced, and led by the supply side, also see our China coverage in the April Global Monthly.