Chinese Manufacturing PMI Improves but just!

31 Dec 11

The HSBC Chinese Manufacturing PMI rises but overall manufacturing activity remains limp.

The HSBC PMI (Performance of Manufacturing Indicator) rose to 48.7 in December compared to 47.7 in November. Any recording below 50 indicates contraction. Although an improvement, Chinese manufacturing remains in the doldrums and is the worst since the GFC in 2009.

Whilst a slowdown in the contraction is clearly evident, the world's factory, being China is suffering the effects of weak demand for its exports of manufactured goods, namely the result of global weakness in demand and continued uncertainty surrounding the eurozone.

In a statement about the PMI, HSBC's chief economist for China, Hongbin Qu, also said that "the ongoing property market correction, adds to calls for more aggressive action on both fiscal and monetary fronts to stabilise growth and jobs, especially with prices easing rapidly. Hard landings should be avoided so long as easing measures filter through in the coming months."

At the same time as the lacklustre PMI is released, Chinese officials have announced a withdrawal of support for foreign investment into the Chinese automotive industry, in a move to encourage the domestic industry to grow in the worlds largest car market.

The announcement is light on detail as to what measures are to be taken to withdraw support, or restrict foreign investment levels, but the announcement will impact GM, Honda and Volkswagon that all have operations in China.

Chinese domestic car sales are said to have slumped in comparison to last year when Government incentives were available to purchasers, which have been subsequently phased out. It is believed the move is being taken to secure the future of China's own domestic automotive manufacturing base and manufacturing jobs.

Australia's own PwC/Aigroup PMI on Australia's manufacturing performance is due out this coming week.