Sorry, But China's 'Better-Than-Expected' Manufacturing Report Was Not 'Good'

Late Wednesday, China released some economic data that’s being characterised as an improvement and a ‘beat’ relative to expectations.

While all of this is fair and accurate, it should not be interpreted as good.

China’s Flash Manufacturing PMI index climbed to 50.4 in October, up from 50.2 in September. It was better than the 50.2 expected by economists. And anything above 50 signals growth.

However, the fact that it has been trending down for the last four years to a level that’s only marginally above breakeven reaffirms the fact that China’s economy is decelerating in a significant way.

“While the manufacturing sector likely stabilised in October, the economy continues to show signs of insufficient effective demand,” HSBC’s Hongbin Qu said.

The signals sent by the internals of the report also instilled very little confidence.

“[T]he manufacturing output index fell to 50.7, a five-five month low (September:51.8), and the sub-indices for new orders and new export orders both lost momentum,” Barclays’ Jian Chang said. “Overall, although the improvement in the PMI is reassuring, the drivers of growth continue to come from the external sector; domestic activity remains soft. Price pressures have been declining, consistent with falling commodity prices, and the inventory buildup seems to be increasing.”

For much of the world, China is an important source of growth. According to IMF WEO data cited by Deutsche Bank, China will be the source of over $US900 billion worth of GDP for the world. So it’s not very encouraging that China’s growth drivers are external while internally things are soft, as Chang says.

“The Chinese economy is slowing rather than collapsing and in the current mood that’s relatively cheerful news,” Societe Generale’s Kit Juckes said.

Of course the PMI report could’ve been worse. But it’s not great.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at