China’s manufacturing sector is struggling to keep up pace

Overview

Data released today on the condition of the Chinese manufacturing sector points towards weaker business conditions. HSBC/Markit China Manufacturing Purchasing Managers’ Index (PMI) is coming down from a seven-months high in February ...

Data released today on the condition of the Chinese manufacturing sector points towards weaker business conditions. HSBC/Markit China Manufacturing Purchasing Managers’ Index (PMI) is coming down from a seven-month high in February (50.7) to an eleven-month low in March (49.2). Overall slower economic growth at GDP-level and growing overcapacity in manufacturing sector is taking its toll.


As the Chinese Spring Festival tends to affect the economic data, the indicators from January and February may not reveal the true condition of the sector. By removing the months of February as an outlier, the manufacturing sector has experienced a downward trend since August 2014.

Despite the fact that the manufactured goods to a predominant extent are produced for exports, the worries behind the current development is slower growth in domestic consumption stemming from slowing wage growth and weaker GDP growth prospects. The slower than expected recovery in Europe has left the US as the only really strong sustainable positive demand generator.

Additionally, employment in China has been decreasing within the manufacturing sector since the end of 2013, a development that creates no up going pressure on wages

The slowdown in China has affected the Intra-Asian demand for container shipping with freight rates coming down sharply.

Moreover, it has affected China’s need for dry bulk commodities in a negative direction. This has been brutally clear in the dry bulk shipping sector as the Baltic Dry Index (BDI) hit an all-time-low on 18 February 2015. China is the overwhelmingly dominant factor in the dry bulk market. The dry bulk market softened during most of 2014, and has not improved considerably in 2015.

Lower commodity prices for iron ore is a supply-side related issue, whereas lower prices for coal is more an indicator of demand coming down and policy-related issues, which tend to favour domestically produced coal and improve environmental conditions.

Note: the PMI estimate is a flash assessment of the final PMI. This means that it is compiled on the basis of a lower number of responses than the full and final PMI indicator. Revision on a smaller scale can occur. The final March data are published on 1 April 2015.

in Copenhagen, DK

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