Fact Check
PMI scores points
By Lan Xinzhen  ·  2023-07-14  ·   Source: NO.29 JULY 20, 2023

According to the National Bureau of Statistics, the purchasing managers' index (PMI) for China's manufacturing sector edged up by 0.2 percentage points in June over that of May to 49 percent, pointing to a stable recovery of the Chinese economy.

The PMI is an indicator of the prevailing direction of economic trends. The index is calculated by surveying purchasing managers in various industries, who are asked about their perceptions of changes in key variables such as production, new orders, employment, raw material inventory and supplier delivery.

When released, a PMI reading over 50 percent indicates economic growth or expansion; a reading under 50 percent suggests contraction; and a reading at 50 percent indicates no change when compared with the previous month.

In February, an array of policies to stabilize the economy, propelled by favorable factors stemming from waning pandemic impacts, helped accelerate the recovery of business in China. The PMI reading for the manufacturing sector that month hit a 52.6-percent high. However, dragged down by lacking market demand, in April, the PMI dropped to 49.2 percent, further slipping down to 48.8 percent in May. Although June's PMI hovered around the tipping point, at 49 percent, the trend still points upward.

Of the 21 industries surveyed in June, the PMI for 12 of them had increased month on month, compared with just eight in May, showing overall progress for the manufacturing sector.

The production and new order sub-indexes under the PMI are both on the rise. The former in June stood at 50.3 percent, up 0.7 percentage points over May and regaining growth momentum. The latter hit 48.6 percent, up 0.3 percentage points over the previous month. The two sub-indexes for industries like automobiles; railway, ship and aerospace equipment; electrical machinery; as well as computer, communications and electronics equipment are all on the rise. The raw material inventory sub-index was registered at 47.4 percent, down by 0.2 percentage points over the previous month, indicating a shrinking inventory of raw materials for the manufacturing sector. Meanwhile, the supplier delivery time sub-index stood at 50.4 percent, down by 0.1 percentage point over the previous month, still above the boom-or-bust line, which shows suppliers are picking up the delivery pace of raw materials to the manufacturing sector.

The PMI for big enterprises rose by 0.3 percentage points over the previous month to 50.3 percent. As both the production and new order sub-indexes remained above the tipping point for two months running, they helped ramp up June's PMI. The PMI for medium-sized enterprises inched up by 1.3 percentage points over the previous month to 48.9 percent and that for small enterprises dropped by 1.5 percentage points to 26.4 percent.

Hi-tech manufacturing, equipment manufacturing and consumer products industries are the major driving force for China's economic growth. The June PMI for hi-tech manufacturing hit 51.2 percent, that for equipment manufacturing hit 50.9 percent and that for the consumer goods industry was 50.7 percent, all over 50 percent.

Currently, the global economy is still struggling to recover, with the negative impact of major developed economies' contractionary policies, or attempts to slow the economy by reducing money supply and fending off inflation, spilling over to the rest of the world. Meanwhile, China still needs more solid foundations to revive market demand and shore up its economic growth. All in all, a combination of unfavorable internal and external factors is posing big challenges to China's economic growth in the second half of 2023.

Nevertheless, the rebounding PMI for the manufacturing industry in June reveals the optimistic attitude toward China's economy on the part of purchasing managers, a cohort of important market participants. From this viewpoint, the Chinese economy is expected to once again pick up the pace sooner rather than later. 

Copyedited by Elsbeth van Paridon

Comments to lanxinzhen@cicgamericas.com

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