Why Boring Chinese Manufacturing Data Is Awesome

Despite Asian stocks being under pressure today due to fears in regards to the effects of regulatory tightening, markets have been supported today by China’s latest PMI manufacturing data, whereby July saw a rebound in the PMI index from a 2010 low in June.

The PMI beat expectations, coming in at 51.7 vs. 51.5 expected, and 51.2 in June, as briefly reported by our colleague Joe Weisenthal.

How should we read it? China’s economy is still slowing, but this manufacturing release helps alleviate concerns that China will slow-down too fast.

Roland Randall @ TD Securities:


One month does not make a trend. Overall the PMI continues to indicate slowing momentum in the manufacturing sector. Slowing Chinese growth momentum has been well flagged (and well discussed). Consensus forecasts for 2010 growth have eased from a high of 10.3% to 9.9%. This will almost certainly slide into the low 9% range in coming months.

July’s reading was the weakest since February 2009 and showed a rising level of caution in the manufacturing sector.

This is the slowdown that the government ‘wanted’, this is no new global crisis. Targeted government restrictions and receding fiscal stimulus are to blame. Both of these policy measures can and most likely will be reversed in coming months. China has already announced a massive infrastructure financing budget that will help to fill the void created by fading of the 2008 stimulus package.

Here’s Mr. Randall’s break-out:


Essentially, the way we see it is that the Chinese Goldilocks scenario continues to play out. (By this we mean a controlled slow-down, with GDP growth that is decent, but not excessive)

(Via TD Securities, ‘China PMI lifts, momentum still slowing’, Roland Randall, 1 Sep 2010)

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