The Problem With That Chinese PMI

Last night China kicked off WORLD PMI DAY with a fairly predictable reading: growth was decent, and inflation was hot.

What else is new?

Maybe nothing, but there may be a hitch emerging regarding an industrial bottleneck.

You know how the US has a big output gap? China has the opposite. It’s production is bursting at the seems.

Credit Suisse’s Jonathan Wilmott put together this chart over at FT Alphaville. It shows the output gap fvs. non-food inflation, and both are picking up.


A separate report from HSBC, via PragCap, also cites a “supply chain bottleneck” as an impediment right now.

This is something Megan McArdle also hinted at based on a recent trip to China. In theory there’s plenty of room to expand inward in China. In practice, the hot areas are near the coasts, and traffic in those cities and ports are full.

Here’s her commentary, which seems particularly relevant:

But one person we talked to yesterday, who specialises in helping American companies break into China, said simply, “If you’re in an export industry, you want to be next to the port.”  Water is the cheapest way to transport goods, and switching between transport modes always adds costs and delays.  If you can just put something on a boat and keep it there, this will always be preferable to driving it to the railhead, loading it into the container, and then reloading that container onto a ship.

This map emphasises the cluster of big cities near the costs/ports:


Watch this bottleneck.

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