For most of last year, China’s official PMI was above the Markit Chinese PMI report. Now the situation is reversed with Markit saying conditions are better than China’s official report. What’s going on?
Please consider China PMIs: a Tale of Two Surveys.
China’s purchasing manager indices, which take the pulse of factory activity by surveying companies, are a puzzle. There is the official government measure and a private one, produced by Caixin-Markit, a media and research group partnership — and each paints a very different picture.
In the first half of 2014, for example, the official chart stayed above 50 while the Caixin PMI showed manufacturing slumping. That was the year China’s growth hit a 24-year low of 7.4 per cent, missing the government’s target of 7.5 per cent, and property prices started to fall.
The March to June quarter this year brought a recurrence of that: the official measures showed manufacturing growing — but only just — while Caixin-Markit showed manufacturing falling. But In July’s PMI the two measures swapped sides: Caixin now showed the highest manufacturing growth since February 2015, while the government showed manufacturing starting to slump.
So what gives?
The divergence is explained in part by the difference in the companies being surveyed. Markit, which calculates the Caixin-Markit index, send out their questionnaires to more than 500 mainly small, private businesses. The government has a much bigger sample size of 3,000 companies, by far the bulk of which are state-owned enterprises.
Regional differences also matter. Liu Liu, an economist at investment bank China International Capital Corporation, suggests July’s uptick in the Caixin PMI is not down to differences in business size — the official PMI for SMEs also slumped last month — but to do with the fact that many of the companies surveyed by Caixin are based on the booming east coast.
In short, both measures are correct in that they reflect their constituents’ activity — but it is the private survey that gives the truer sentiment of factory floors that are not protected by the state.
The survey methodologies are so different neither represents a true picture.
Ignoring large companies totally while measuring a small sample of small businesses in a region that is booming when the rest of the country that isn’t, is like measuring drops of water in a glass that is full while ignoring three other glasses that are bigger, and empty.
Neither of these reports accurately represents what’s happening in China.
Mike “Mish” Shedlock
‘Neither of these reports accurately represents what’s happening in China.’
Yeah, general rule of thumb, NOTHING that China ‘reports’ can be trusted. EVER.
Invest accordingly.
Look, on one hand you have a country with the a massive population that is reporting monthly statistics. Some say the statistics are slanted towards fiction and overly positive. China wants you to believe them as objective fact.
China is about 20+ years into the modern age after leaving a fog of stagnant Communism. They have progressed an unbelievable amount in the direction of giving their people a decent life and towards being a good place to do business if you’re buying something, selling something, or setting up an international base of some kind.
On the other hand, their long history is oriented towards a lack of individual freedom and privilege including theft from those at the top. There is maybe 40 years of Communism vs 3000 years of serfdom and oligarchy, which includes exploitation and outright theft. International business is taking them in a new direction.
Thieves and hillbillies have been running the economic aspects of the country for a decade or two. This explains massive capital outflows and massive mal-investment internally.
To me, it appears the current leadership is trying to get on top of the situation.
If they don’t and if well meaning humanitarians from outside (hint hint Hillary and the War party) decide that the Chinese have been exploited to the point of a needed regime change, God help the world. A billion plus screaming Chinese who have never experienced total freedom ever in thousands of years, who now feel exploited and in need of self expression, running loose and looking for retribution, will blow up the world.
My best wishes to the Chinese leadership to keep a lid on things and move forward at your own pace. Lie as you see fit. Set your currency value to what look good to you. You have my support. The nature of the world will keep you honest over the long run. Print whatever you want. It’s in your own self interest to not screw over the rest of the world or your people while you grow from the dark ages into the twenty first century.
Are you going to put your life on the line to report truthful economic data that contradicts the government? I wouldn’t.