A Positive HSBC Manufacturing PMI Is Masking China's Economic Weakness

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The HSBC manufacturing PMI is out and has printed exactly the same number as the “flash” estimate for October of 50.4.

The fact that it held above the 50 contraction/expansion level is good news but HSBC said in a press release that:

Chinese manufacturers again signaled only a fractional improvement in overall operating conditions in October. Output and new business both expanded at the slowest rates in five months, while new export order growth weakened from September’s recent peak to a modest pace.

But like the non-manufacturing PMI released earlier today, there are signs the labour market is loosening, with HSBC noting that “relatively subdued market conditions led to a further reduction of staff numbers in October”.

That is not good news for the consumption side of the economy and once again highlights that it is largely, almost exclusively, exports which are driving the Chinese growth engine at the moment.

Indeed, output and new order growth have weakened to a 5-month low. Even exports are slowing to their slowest pace since June.

The upshot is that HSBC is calling for more economic stimulus from the Government and the PBOC with Hongbin Qu, chief economist (China) and co-head of Asian Economic Research at HSBC saying:

The economy still shows clear signs of insufficient effective demand. We still see uncertainties, given the property downturn as well as the slow pace of global recovery, and expect further monetary and fiscal easing measures in the months ahead.

The Aussie dollar has rallied from lows just preceding the release, suggesting the market was fearful of a slip below 50. But this is not a good number for China or global growth – it’s just not terrible.

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