by October data suggests China continues to regain momentum, justifying our decision to raise our growth forecast for this year. But we still expect growth to slow in 2017.China’s purchasing manager indices (PMIs) rose strongly in October. Both the official and the Caixin manufacturing PMIs came in at 51.2 , reaching their highest levels since August 2014. The official non-manufacturing PMIs also rose noticeable in October. The strong figures indicate that the improving growth momentum in China of the past few months has extended into Q4.There was across-the-board improvement in the PMI sub-components. The PMI for small- and medium-sized enterprises (SMEs) also saw a notable rebound in October, while the rise in the inventory sub-index and other recent data on industrial inventories suggest that a round of industrial re-stocking is probably underway after a long period of deceleration.In addition, the surge in the input-price sub-index in October suggests that the producer price index (PPI) in China will likely continue to rise in the coming months. The latest figures add to evidence pointing to an extension of China’s industrial reflation into Q4 , and likely through H1 of 2017 as well. Rising prices for industrial goods are already being reflected in higher profits for industrial corporations, which will also find it easier to service their debts.
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Dong Chen considers the following as important: China growth, China inflation, China PMI, China PPI, Macroview
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October data suggests China continues to regain momentum, justifying our decision to raise our growth forecast for this year. But we still expect growth to slow in 2017.
China’s purchasing manager indices (PMIs) rose strongly in October. Both the official and the Caixin manufacturing PMIs came in at 51.2 , reaching their highest levels since August 2014. The official non-manufacturing PMIs also rose noticeable in October. The strong figures indicate that the improving growth momentum in China of the past few months has extended into Q4.
There was across-the-board improvement in the PMI sub-components. The PMI for small- and medium-sized enterprises (SMEs) also saw a notable rebound in October, while the rise in the inventory sub-index and other recent data on industrial inventories suggest that a round of industrial re-stocking is probably underway after a long period of deceleration.
In addition, the surge in the input-price sub-index in October suggests that the producer price index (PPI) in China will likely continue to rise in the coming months. The latest figures add to evidence pointing to an extension of China’s industrial reflation into Q4 , and likely through H1 of 2017 as well. Rising prices for industrial goods are already being reflected in higher profits for industrial corporations, which will also find it easier to service their debts. In addition, the effect of rising PPI will likely gradually feed into consumer prices in the coming quarters. As a result, we expect to see China’s inflation rate to rise slowly in Q4 2016 and 2017.
In summary, the latest PMI reports for October confirm our view that the Chinese economy is likely to hold up well in H2 2016. At this moment, we are comfortable with our full-year GDP forecast of 6.7% for 2016 (recently revised up from 6.5%).
However, the current industrial rebound has, to a large extent, been driven by the revival of the housing market, which, in our view, is not sustainable. As property-related construction activity starts to lose momentum, possibly starting in Q2 2017, China’s GDP growth will likely slow down again. As a result, we are keeping our Chinese GDP growth forecast of 6.2% in 2017.