China's Unsustainable PMI

Tyler Durden's picture

The last two nights we have been bombarded with headline data on manufacturing in China - one good and getting better and one bad and consistently contracting. Credit Suisse digs into the reality underlying these indices and notes three reasons why they feel the positive PMI trend is unsustainable as cutting through the "baffle-'em-with-bullshit" macro data is critical in understanding the sad reality we face.

First, PMI New Orders have been sustaining the recent strength but seasonally (thanks to Chinese New Year) it is all downhill from here (and in fact this month's data dropped modestly)...

Second, the divergence between NBS and HSBC is almost as wide as it has ever been and has proved entirely unsustainable in the past (with NBS PMI tending to drop to HSBC in most cases). This dislocation may be due to some selective government projects that are a) not a reflection of the broad economy; and b) likely unsustainable also...

and third, the divergence between PMI New Orders (down) and PMI Output (dramatic rise) is entirely unsustainable. For this year, the movement in new orders in April is counter to its usual seasonal pattern, reflecting the weakness in the underlying demand from the private sector. This is a point we have been warning over the past two months.

As Credit Suisse concludes:

The latest trend in PMI fits with the scenario we have been talking about – the economy has bottomed but not out. While the resumption of local government infrastructure projects would help remove the risk of a hard landing, we do not think it would help the economy to rebound quickly and strongly. In our view, Beijing’s tolerance towards slightly more lending is assuring, while the pick-up in some infrastructure investments has also provided a floor to how slow growth can be. However, the underlying demand from the private sector is missing at this moment and that cannot be addressed by simply making monetary policy less restrictive, in our view. Without the involvement of real private businesses and with continued restrictions on lending to developers, we suspect banks will soon run out of qualified borrowers to undertake projects and drive economic activities forward. We think that this data set would cool off the market’s optimism about a quick rebound in Chinese demand.

Yet, the economy is not doing that bad, hence a substantial stimulus is not likely in the near future. We reiterate our core view for the medium term outlook that the Chinese economy has entered a multiple-year period of subdued growth, featuring a weak credit cycle, a weak export cycle, a weak property cycle, and a weak SME cycle.

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barliman's picture


"Shocked! I am shocked to learn the Chinese are lying about their economic statistics!"

'Here are your BLS numbers, monsieur'

 "Thank you"


Dr. Engali's picture

That would never happen here....wait....nevermind.

Ben Burnyankme's picture

Resturant closed.  We dryclean now.

akak's picture

You want flied lice or egg lorr?

TheFourthStooge-ing's picture

Welcome Shitty Wok, take order prease.


akak's picture

"There was something in the ail that night, the stals were blight, Felnando ...."

TheFourthStooge-ing's picture

"She a dericate frower."


meimei's picture

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Dr. Engali's picture

We no dry clean..we massage parlor....fucky sucky in back.

moskov's picture

HSBC tends to focus on Private companies and small and medium size projects


NBS tends to focus on the Big State projects like High-Speed Rail, Concil flats, Bridges, airports.....



Manthong's picture

Sources suggest the US has to create 20 million new jobs by 2020 to get back on the leadership track.

Here’s a little China something to ponder..

“The announcement said 25 million urban workers need to find jobs each year”

 And what happens if they don’t create 25 Freaking MILLION New Jobs PER YEAR?

How do YOU spell “SHTF”?


Dr. Engali's picture

CNBS Breaking news story :

The dept. of justice arrests more than 100 in $450 million Medicare fraud scheme. (story developing) That's great. Now how many criminal bankers are running free for the trillions they stole? Anybody seen Corzine lately ? He stole 1.6 billion. But I guess that's okay because it was private sector money that got transferred to Obummer's campaign coffers.


Osmium's picture

Thank God they are on top of the Roger Clemens case too.  We wouldn't want him on the loose.

It's against the law to lie to congress?  Anyone bother to tell Bernanke that?

Jason T's picture

that they went from building 13.79 million cars in 2009 to 18 million in 2010 and 18.6 million in 2011.. now, year over year car sales in China are down 3.5% in Q1 .. tells the story of explosive growth to slow down.



akak's picture

Make me chuckle!

It is all the fault of nose-picking algebraic coconut running dog Chinese Citizenism.

Chinese Citizenism nature is infernal.

TheFourthStooge-ing's picture

Chinese citizenism, as already having been shown to exist, is now without question a pan-continental phenomenum.

And this despite confirmation the offuscation infirmation is.


akak's picture

Offuscation and denialistism is part and package of Chinese Citizenism official program.  Script is written, followed religiously.

This is born into Chinese citizens from early days, from time when mothers doing dropping of them on roadsides, next to festering nightsoil deposits --- the Chinese New World Odor.

Chinese Citizenism citizens, breeding like rabbits, giving the births like animals also.

Shitting on roadsides as animals doing suchlike.  Making much joy for freely opening Chinese public sphincters.

But nothing provides shaming to Chinese Citizenism citizens, who carry on regardlessly.