China PMI: No end in sight to unbalanced economic story

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This photo taken on June 27, 2024 shows employees working on making sun protection clothing at a factory in Fuyang, east China’s Anhui Province.

Hong Kong

Factory activity in China Private companies expanded at the fastest pace in three years, a private index showed on Monday, pointing to growing domestic and international demand for Chinese goods.

This contradicts the results of an official government survey conducted on Sunday that showed a contraction among major state-owned manufacturers, which confirms that the recovery in the world’s second-largest economy remains uneven.

The Caixin manufacturing purchasing managers’ index rose to 51.8 in June, up from 51.7 in May, according to a statement from S&P Global, which compiled the survey. The figures not only beat market expectations but also marked the sixth straight month of improvement in the index.

But the measure contrasts with the National Bureau of Statistics’ Purchasing Managers’ Index, which was unchanged from May at 49.5, marking the second straight month of contraction.

The Purchasing Managers Index (PMI) is a monthly indicator of economic activity. A reading above 50 indicates expansion, while a reading below this level indicates contraction.

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Employees operate machines at a semiconductor factory on March 1, 2023 in Xiang District, Suqian City, Jiangsu, China.

Analysts from Goldman Sachs said on Monday that the “divergence” between Caixin and the official PMIs has widened further since May, likely due to differences in the sectors covered.

The Caixin survey covers more export-oriented, consumer-related companies. However, the official PMI is more skewed toward manufacturers that produce industrial materials — including steel, cement and chemicals — making them more vulnerable to slowing fixed-asset investment.

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Analysts believe the current data reflects an economic reality characterized by strong exports and consumption, but weak investment.

“Demand for consumer and intermediate goods was stronger than demand for investment goods,” said Wang Zhi, chief economist at Caixin Insight Group.

“Overall, the manufacturing sector continued to improve in June, with domestic supply, demand and exports continuing to grow,” he added.

June customs data is not yet available, but May statistics showed the country Exports rose 7.6% compared to the previous year, beating analysts’ expectations.

However, manufacturers remain less optimistic about the outlook, with recent tariff announcements from the US and EU dampening their sentiment.

“The gauge of future production expectations… fell more than three points from the previous month, hitting its lowest level since November 2019,” Wang said.

Concerns expressed by companies surveyed [in the Caixin index] “The main challenges were the significant downward pressure on the economy and the intense competition in the market,” he added.

Last month, the European Union announced additional tariffs of up to 38.1% on electric cars imported from China, due to what it sees as Beijing’s unfair support for companies that undermine European automakers.

The temporary tariffs are scheduled to go into effect by July 4 while the investigation continues. The tariffs are scheduled to be finalized on November 2 when the investigation is complete.

The European Union’s decision comes a month after the United States quadrupled tariffs on electric cars coming from China, from 25% to 100%, a move aimed at boosting jobs and manufacturing in the United States.

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