Explainer | Is China in a renewed recovery? 4 takeaways from January’s manufacturing, services data
- Official manufacturing purchasing managers’ index (PMI) remained in contraction in January, while the Caixin/S&P Global gauge for factory activity beat expectations
- Official non-manufacturing PMI continued to improve in January, while the Caixin/S&P Global gauge edged down slightly
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1. On paper, factory activity held steady last month
Within the manufacturing PMI, January’s new export orders subindex increased to suggest internal and external demand had improved.
The production subindex also improved from the previous month, indicating that sentiment in the manufacturing sector had improved.
An increase was also seen in the new orders subindex, indicating demand for the manufacturing sector had improved slightly.
“January’s modest rebound in the official manufacturing PMI was mostly driven by a production improvement,” said analysts at Nomura.
“Overall, two of the five subindices that directly feed into the headline manufacturing PMI calculations contributed to the sequential uptick in January, and three subindices remained drags on the headline index, suggesting the ongoing economic dip in the sector remain well in place in January.”
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“We think it makes sense to average across both PMIs to gauge conditions in industry and get a sense of what they mean for the hard data,” said analysts at Capital Economics.
“On this basis, the headline manufacturing reading edged up fractionally and, on paper at least, is consistent with factory activity holding steady last month.”
2. Service sector continues to regain momentum
China’s official non-manufacturing PMI – an indicator of services activity – continued to improve in January, climbing to 50.7 from 50.4 in December.
The subindex for services returned to growth following two months of contraction, but construction grew at a significantly slower pace.
“The improvement was led by solid prints in the transportation and catering sectors, which rebounded to expansionary territory thanks to robust tourism during the New Year’s holiday,” said analysts at Nomura.
“However, with the recent stock market rout and faltering property sector, the capital market and real estate services sector PMIs were in contractionary territory.”
“China’s service sector looks to have continued regaining momentum last month. The Caixin services PMI edged down in January,” said analysts at Capital Economics.
“But it remained more upbeat than its official counterpart, with the average of the two picking up slightly.”
3. Composite average rises for third month in a row
China’s official composite PMI, which includes manufacturing and services, stood at a four-month high of 50.9 in January compared with 50.3 the previous month.
Meanwhile, the Caixin/S&P’s composite PMI dipped to 52.5 last month from 52.6 in December.
The average of the official and Caixin composite PMIs rose for a third month to 51.7, according to analysts at Capital Economics, although it was still below the pre-pandemic average of 52.5 in 2019.
4. A sign of improvement?
“It is not clear if the latest rise in the PMIs reflects a further improvement in January or simply the easing of sentiment effects that have been weighing on the surveys,” said analysts at Capital Economics.
“Either way, it adds to evidence that growth momentum in China is in the midst of a renewed recovery, albeit one that remains on shaky foundations and is unlikely to be sustained once current policy support is pared back.”
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