International | Jul 06 2007
By Rudi Filapek-Vandyck
The Chinese economy may have become one of the key factors to watch for global investors, however interpreting Chinese economic data remains more art than science.
Two groups of researchers and data collectors try to gauge business activity among the country’s many manufacturers each month and it just so happens to be that both measurements pointed in a different direction in June.
The first – Chinese PMI (purchasing manager’s index) from NTC-CLSA – rose again in June, to register at 55.0, which was not only up from 54.1 in May but also the highest level since March 2005.
The second PMI, however, released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing, eased for the second consecutive month to 54.5. This PMI reached its all-time high of 58.6 in April.
How to explain this?
Blaming differences in sampling and compilation methods, like some economists do, probably goes a long way.
But how should one interpret this?
The China focused team at JP Morgan believes that, based on in-house research, it would seem that the NBS PMI series (the second one above) is more closely related to industrial production growth two months later in the country whereas the CLSA version (the first one above) would appear to be a better gauge for the actual industrial production growth in the same month.
This would suggest that Chinese industrial production is to weaken into the next quarter.
It’s a view endorsed by the China specialists at Credit Suisse who have taken the view that economic growth in the country has peaked in the second quarter of calendar 2007 with the third quarter likely to surprise to the downside.
Credit Suisse talks of “mild growth moderation” for the current quarter which has the potential to force market estimates of economic growth for the year down. Moreover, the analysts believe there’s every chance that because of this (anticipated) moderation the Chinese authorities will be very, very vigilant when taking further steps to cool down the economy in an orderly way.
Credit Suisse also believes that any confirmation the Chinese economy has peaked may pose a threat to share prices of cyclical stocks that have performed very well during the first six months of the year.
The analysts believe any near-term weakness in the third quarter will probably be related to exports and investment. As it happens, these are the two major drivers behind China’s economy.
The specialists remain positive on Chinese economic growth in the subsequent quarters.
