Casting doubt over the strength reported in the Chinese government’s official figures, new data from IHS Markit suggests that activity levels across China’s manufacturing and services sectors slowed sharply in September.
The group’s composite purchasing managers index (PMI), produced in conjunction with Caixin Insight Group, fell to a three-month low of 51.4 in September, a performance in stark contrast to that reported by the Chinese government who said that activity levels improved at the fastest pace in years over the same period.
The IHS Markit PMI measures perceived changes in activity levels across China’s manufacturing and services sector from one month to the next.
Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.
At 51.4, that suggests that while activity levels improved last month, they did so at a slower pace than August.
In contrast, China’s National Bureau of Statistics (NBS) said that activity levels across China’s manufacturing sector improved at the fastest pace in more than five years, while the services sector saw activity levels accelerate to the fastest level since May 2014.
The difference between the readings may reflect the sample size of each survey, or that the NBS figures tend to reflect the performance of larger state-owned enterprises, differing it from the IHS Markit survey which focuses on small and medium-sized firms.
However, it may also reflect that one comes from the government while one is conducted by a private-sector firm, something to consider given the proximity to China’s National People’s Congress next week, an important event that will see the government set its goals for the Chinese economy in the decade ahead.
The government’s figures suggests that the economy is strong, in stark contrast to the view conveyed by the IHS Markit survey.
Outside of the reasoning behind the divergence in the survey’s, IHS Markit said that a deceleration in China’s services sector was largely to blame for the soft September result.
“A drop in the seasonally adjusted Caixin China General Services Business Activity Index from 52.7 to 50.6 in September pointed to only a marginal increase in services activity that was the slowest for 21 months,” it said.
“At the same time, growth in manufacturing production edged down to a three-month low.”
Suggesting that the moderation may continue in the months ahead, the group said that growth in new orders — a lead indicator on future activity levels — also slowed from a month earlier.
“Weaker expansions in activity coincided with a slowdown in new order growth across both monitored sectors,” IHS Markit said.
“While manufacturers signalled the softest increase in new business for three months, service providers saw only a modest upturn in new order books.
“A number of companies mentioned that relatively subdued client demand had weighed on sales at the end of the third quarter. As a result, composite new work increased at the weakest pace since June.”
Fitting with that outcome, the group said that it acted to dampen business optimism with manufacturers and service providers “expressing a weaker degree of optimism compared to the previous month.”
“The Chinese economy generally held up well in the third quarter,” said Zhengsheng Zhong, Director of Macroeconomic Analysis at Caixin Insight Group/
“However, the expansion in both manufacturing and services cooled in September, suggesting downward pressure on economic growth may re-emerge in the fourth quarter.”