The new year has started with a nice surprise for China, as Caixin Markit PMI data (private) handsomely beat expectations. Manufacturing PMI has recorded the biggest jump in almost four years, while the composite PMI, which aggregates manufacturing and service sectors has reached its’ highest level in the last 45 months. On the other hand, National Bureau of Statistics’ official PMIs has recorded marginal decreases for both sectors. We already know that official and private PMI data could move in opposite directions, for a given month. However, this can not hold the China PMI data back, from being quite succesful proxies for GDP growth.
Below, we can see that both PMI data points to a pick up in GDP growth data for the fourth quarter of 2016. However, we don’t think this pick up would go too far, particularly not as much as the private index suggests. That’s because it seems wise to be prudent, especially at a time which the global economy is flooded with uncertainties and risks. Moreover, we advise our readers against drawing conclusions about China, by looking at only one months’ outcome. Nevertheless, we can confidently say that GDP growth would increase a bit, compared to third quarter, and the governments’ target of 6,5%-7% growth for the whole year would be comfortably met.
Nowadays, anyone saying only positive words about China would not deemed credible. Thus, let’s see if there are negative details in the PMI. Both official and private PMI’s employment sub-indices suggest decreasing employment in manufacturing industry. Moreover, input prices seem to increasing steeper than PPI, which can be seen as an indication of manufacturers’ difficulties about reflecting higher costs in their prices. Since we expect the positive suprise of 2017 to come from private sector, we might follow this trend more closely in the coming months.