It’s a mixed bag in Asia, but all things considered an overall weak one. Let’s take a look at the data to see what bulls and bears have to cheer about.

China PMI

The HSBC China Services PMI Shows Sharpest Contraction of Output Since November 2011.

HSBC China Composite PMI signalled that business activity in China fell for the second month running in March. Though slight, the rate of contraction was still the sharpest since November 2011, with the HSBC Composite Output Index posting at 49.3 in March, down from 49.8 in February.

Data for March signalled that the reduction in overall business activity was driven by the manufacturing sector, which posted its sharpest contraction of output since November 2011. Meanwhile, services activity growth strengthened to a four-month high, as signalled by the HSBC China Services Business Activity Index posting at 51.9 in March, up from 51.0 in February.

However, growth remained subdued in the context of historical data.

New business followed a similar trend to output, with new work falling for the second successive month at manufacturers, but rising at service sector firms. The rate of new order growth in the service sector was little-changed from February and moderate, amid reports of new client wins. However, manufacturers’ new orders fell at the strongest rate in 28 months.

Chinese manufacturers cut their staffing levels again in March, albeit marginally. In contrast, higher volumes of new work led service providers to expand their payroll numbers at the fastest rate since June 2013.

Notably , job creation at service providers offset job shedding at manufacturers, and led to the first increase of employment at the composite level for five months.


Commenting on the China Services and Composite PMI™ data, Hongbin Qu, Chief Economist, China & Co – Head of Asian Economic Research at HSBC said:

“The HSBC China Services PMI suggests a modest improvement of business activities in March, with employment expanding at a faster pace. However, combined with the weaker manufacturing PMI reading, the underlying strength of the economy is softening, which should ultimately weigh on the labour market.”

Japan Returns to Growth but Business Sentiment Collapses

The Markit Japan Services PMI shows Japan Returns to Growth but Business Sentiment Collapses.


Japanese service companies reported a rise in output in March following February’s fall. Meanwhile, new business improved for the eighth month running and employment increased again. However, business sentiment was the lowest since June 2012 as companies reported concerns around the effects on demand of the forthcoming sales tax rise.

The headline seasonally adjusted Business Activity Index increased to a level of 52.2 from a reading of 49.3 reported in February.


Commenting on the Japanese Services PMI survey data, Amy Brownbill, Economist at Markit and author of the report said:

“The latest data on the performance of the service sector was promising, with business activity increasing from the previous month of decline. With output, new orders and employment all on the rise, the expectation is for continued growth over the next 12 months. However, most of the anecdotal evidence suggests that the improvement in March was linked to the upcoming increase in the sales tax, which is due to be implemented this month. The question of whether this continued growth is sustainable will begin to be answered in next month’s survey”

Bulls and Bears Both Can Cheer

There is plenty of room for both bulls and bears to be happy about something. In China it’s services vs. manufacturing.

In Japan, it’s an overall improvement despite a collapse in business sentiment due to huge tax hike.

Here’s my take: Those front-running the sales tax hike by buying large-ticket items like cars and appliances temporarily skewed the data. The same thing happens universally with expiring tax credits.

As for China, growth will undoubtedly slow, and likely faster than most think. But it will not be a straight-line slowdown.

Expect unwarranted hope across the board.

Mike “Mish” Shedlock