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China’s HSBC flash PMI climbed to 49.1 in April, from 48.1 the previous month. The flash number has been much lower than official numbers the past two months.In his latest report, Ting Lu, China economist for Bank of America-Merrill Lynch says he expects the official number to stay above 51 in April. He also cites three key reasons for this trend:
- The HSBC index focuses more heavily on small-and-medium enterprises (SMEs) than the official index. SME’s could be hit harder by tightened liquidity conditions, though liquidity conditions have improved recently.
- China’s export manufacturers tend to be of small scale, and the HSBC PMI sample could have more exposure to the export sector. Remember, export growth decelerated to 7.6 per cent YoY in the first quarter from 14.3 per cent the previous quarter. In contrast, fixed asset investment (FAI) and retail sales growth was strong in the first quarter.
- Finally, small manufacturers are less efficient and are being consolidated into big ones which could affect the flash PMI reading because of it’s focus on SMEs.
Lu says it is misleading to judge the trend using just monthly data and says the HSBC PMI tends to paint a more bearish picture of China’s manufacturing sector at the moment than the official number suggests. Moreover, he adds that the Chinese service sector is quite resilient at this stage.
Lu expects a rebound in second quarter GDP growth to 8.5 per cent, from 8.1 per cent in the first quarter.