China: January PMIs pick up modestly

China Macro: Manufacturing PMIs show the supply side is still stronger than the demand side

China’s PMIs for January showed a modest improvement on balance, quite in line with market expectations. To start on the industrial side, Caixin’s manufacturing PMI published this morning was unchanged compared to the previous month, at 50.8 (in line with consensus). Yesterday, the ‘official’ manufacturing PMI published by NBS picked up modestly to 49.2 (December: 49.0, consensus: 49.3). This marked the first rise in four months, although NBS’s index remained below the neutral 50 mark separating expansion from contraction.

Looking at the various components of both manufacturing surveys, a common feature is that the supply side is still stronger than the demand side. The output components are well above the neutral mark in both surveys, and higher than the subindices for domestic and export orders. This is consistent with the fact that the subindices capturing cost price pressures are still at relatively subdued levels. That said, the export subindex showed a significant improvement in both surveys. In Caixin’s survey (with a stronger focus on export-oriented firms and private firms), this component rose back to expansion territory (50.7) for the first time since June 2023. In the NBS survey (with a stronger focus on large state-owned firms), the export component improved by 1.4 points, but at 47.2 remained well below the neutral mark.

Official non-manufacturing and composite PMI at a four-month high

Meanwhile, the official non-manufacturing PMI (covering services and construction sectors) picked up to a four-month high of 50.7 (December: 50.4, consensus: 50.6). The subindex for services improved by 0.8 point to 50.1, climbing back to above the neutral mark for the first time in three months. The subindex for construction dropped sharply to 53.9 (December: 56.9), although remaining clearly in expansion territory. The official composite PMI, a weighted average of the output components in the manufacturing and non-manufacturing surveys, rose to a four-month high of 50.9 (December: 50.3). Caixin’s services and composite PMIs will be published on Monday 5 February.

All in all, the January PMIs so far are in line with our view that sequential growth will be underpinned this year by ongoing piecemeal easing and targeted fiscal support, although we expect full-year annual growth to fall from 5.2% in 2023 to 4.7% in 2024 (also see the China coverage in our January Global Monthly here). That said, the overall improvement in the PMIs should be taken with some caution, given that we are nearing the Lunar New Year break (starting 10 February this year). This often leads to a pick-up in activity prior to this break. More fundamentally, containing the problems in the property sector remains key, but the flaring up of the Evergrande saga this week following a verdict in Hong Kong once more illustrates that this is a slow-burning crisis and regaining confidence is taking a long time.