China manufacturing is reported to be in contraction and expansion simultaneously. The Chinese government reports expansion. The HBSC PMI says China is in contraction for the 6th consecutive month.

Obviously this is impossible, so the question is “who to believe?”

China Manufacturing Expands at Faster Pace

Bloomberg reports China’s Stocks Rise Most in Two Weeks on Manufacturing, Fee Cut

China’s stocks rose the most in two weeks after manufacturing expanded at a faster pace and the nation’s two stock exchanges said they will cut trading fees by 25 percent to attract investors.

Citic Securities Co. and Haitong Securities Co. led brokerages higher on speculation the regulators’ move may boost stock trading. Jiangxi Copper Co. and Yunnan Copper Industry Co. (000878) gained more than 9 percent after the Purchasing Managers’ Index rose to 53.3 in April, the fastest pace in a year.

“We’re definitely going to have a major bull market ahead,” Jerry Lou, the chief strategy officer at Morgan Stanley Huaxin in Shanghai, said in an April 24 phone interview.

China Manufacturing Contracts 6th Consecutive Month

Markit reports China Manufacturing Sector Operating Conditions Deteriorate at Marginal Rate

April data pointed to further reductions in manufacturing output and new business, although rates of decline were marginal in both cases. Consequently, companies remained cautious with regards to hiring, highlighted by the index measuring trends in manufacturing employment reaching its lowest level in 37 months.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 49.3 in April, up from 48.3 in March. That indicated a sixth successive month-on-month worsening of manufacturing sector operating conditions in China.

Key points

  • Manufacturing output and new orders both fall at marginal rates
  • Employment down at fastest rate in over three years
  • Input cost inflation remains subdued


Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“The upward revision to April’s final PMI reading, compared to the flash estimate, confirms that the pace of China’s slowdown is stabilized. The 8.1% y-o-y GDP growth is likely to be the cyclical trough. As easing measures are starting to work and additional easing measures are on the way in the light of accommodative inflation outlook in the coming months, we expect Chinese GDP growth to bottom out in 2Q and recover modestly to over 8.5% in 2H.”

Cyclical Trough Coming Up?

What is with these perpetually bullish comments on Markit? I am seriously at a loss here.

For months on end we heard nonsense about no recession in Europe, followed by no recession in Germany, followed by calls for a short recession.

Then the bottom fell out days ago as noted in Eurozone Manufacturing PMI Hits 34 Month Low; German Manufacturing Hits 33 Month Low; Orders Drop Steeply Across the Board.

Absurd Predictions

Here we are again with preposterous predictions of a cyclical bottom in China.

I do not know what the next quarter will bring, or even the next several quarters,  but these guys are not on the ball nor are they in left field. Frankly, they are not even in the ballpark.

If China GDP posts a cyclical bottom at 8.1% I will eat my hat. I believe, along with Michael Pettis at China Financial Markets that China will “average” 3.5% GDP or less for the rest of the decade.

For details, including two bets Pettis made with The Economist please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?

If China growth slows to 3.5% or lower on average, the bottom will be far less, perhaps even negative. Regardless, the idea that China’s GDP will bottom at 8.1% is absurd.

Mike “Mish” Shedlock
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