We just got the official and HSBC China PMI numbers, and both are painting different pictures of the nation’s manufacturing sector.
Bank of America’s Ting Lu explains that the divergence in the official and HSBC Flash PMI readings could be driven by seasonal factors and the survey samples for each. The HSBC Flash PMI represents 85 – 90% of the respondents to the survey:
First, the decline of flash HSBC PMI, which was conducted in mid-July, was likely impacted by the prolonged pessimistic sentiment as a result of the interbank turmoil in June and the uncertainty regarding the new government’s growth floor (or even worry of an engineered hard landing as part of the so called “Li Keqiang Economics”).
However, since mid-July Premier Li has made it very clear that his government will try to achieve the 7.5% growth target with some policy easing measures including more investment in infrastructure FAI. So the official PMI survey which was conducted late July could be impacted by the more positive sentiment.
Second, the HSBC PMI sample is overly represented by small exporters which were hit by rising RMB, rising wage and sluggish global demand. However, the official PMI is more represented by domestic big enterprises with large exposure to FAI. The improved sentiment will surely support the official PMI.
The other logical question that follows is which number investors should pay attention to.
Lu writes that we should focus on the official number, since the HSBC survey is more exposed to exporters, and “exports now only contribute 10% of China’s GDP.”
This chart from SocGen, which does not reflect the data for July, shows the difference in the trajectory of the HSBC and official PMI: