Traditional Manufacturing Slowdowns in July

Disappointing Results

The results recently announced by the National Bureau of Statistics fell below what many economists had previously predicted for the month of July. For China, the manufacturing purchasing managers index (PMI), had fallen from 50.0 in June, to 49.9 in July, the first contraction in 5 months.

Despite this, the alternative manufacturing PMI compiled by Caixin actually showed a substantial rise to 50.6 in July, an increase of 2.0 from June and the first time the index has risen above 50 in almost a year and a half. 50.0 is seen as the break even point, with anything below showing a contraction, whereas anything above seeing growth.

Due to both of these indexes appearing to show two different trends the differences between them should be highlighted. The index produced by the National Bureau of Statistics is more accurate when it comes to tracking the larger state owner companies, whereas Caixin’s better reflects the performance of smaller private companies.

However, with knowing this information it presents a confusing picture from the results. As mentioned in a previous article found here, state owned enterprises should be thriving due to the governments investment into maintaining growth. It should also be expected that private companies would find it more difficult to produce growth, due to the competitiveness of the industry and disadvantage the firms have when compared to state owned enterprises.

Both indexes should not always be considered to be completely reliable. Partly due to the discrepancies mentioned, but also due to the reliability of the government. Since the Chinese government wants to make the country appear to be performing strongly, many believe there may be slight alterations when it comes to the statistics presented.

What is still slightly unclear though is why the private sector appeared to thrive and beat out analysts’ predictions. It appears to conflict the current environment where state enterprises should be thriving more. The answer may be due to the increase investment in infrastructure, enabling these companies to expand at a faster rate.

The Future

This month’s results are certainly not going to ring any alarm bells. Despite the disappointing results by the larger state enterprises, much pleasure can be found in private companies seeing a rise in orders and level of output. The slowdown seen by the government backed state enterprises is one that has been predicted for quite some time, so these results should by no means come as a shock, even though economists did not expect the results to occur this month. Undoubtedly however, the difficulty in the traditional manufacturing sector is expected to continue, and the results are an early indication that the second half of this year will be difficult to achieve GDP growth.

The Stock Market

There was a direct effect upon the stock prices in many of the large enterprises when it came to the stock market however. Due to the apparent showdown, Chinese shares had fallen to its lowest level within the last month. Particularly the Shanghai composite saw a fall of 0.87%, and the Shenzhen composite saw a larger drop of 1.48%.

Elsewhere throughout Asia most stock markets had seen rises and appeared to be unaffected by the slowdown within China. Australia’s ASX 200 and the Japanese Nikkei 225 all closed being up 0.45% and 0.4% respectively, with similar rises being seen in Korea and Hong Kong.