China turned in what looked to be decent PMI data for April on Thursday, even as weak external demand threatens to derail the country’s nascent recovery from an unprecedented contraction in the first quarter.
The official manufacturing gauge printed 50.8 for April, slightly below estimates and down from March, but still in expansion territory. The new export orders sub-index dove to 33.5.
Last month, the numbers staged a V-shaped bounce off record lows hit in February, when the country was still battling to contain the coronavirus.
The services PMI came in at 53.2 this month. That’s up from March and better than expected.
A beat on the services side is good news given the rather worrisome dichotomy reflected in March’s activity data, released concurrent with GDP earlier this month.
You may recall that retail sales remained severely depressed in March despite a rebound in industrial production. To some, that was a reflection of the fact that while you can flip the proverbial switch on industry (especially in a command economy), it’s much more difficult to get nervous consumers back into stores and back at restaurants.
Also on Thursday, the Caixin manufacturing gauge slipped back into contraction at 49.4, down from 50.1 last month.
As ever, there’s widespread skepticism about China’s commitment to veracity when it comes to documenting and quantifying the country’s recovery from an unthinkable Q1 contraction. Earlier this week, for example, Shandong-based Zhongtai Securities retracted a report suggesting the real unemployment rate in the country is around 20%, far above the official, surveyed jobless rate of 5.9% reported for March. Obviously, one does not simply suggest something like that in China with impunity, and while I’m sure there’s a compelling backstory, it wasn’t immediately clear why the three analysts (one of whom spoke briefly to Bloomberg by phone) thought they could get away with it in the first place.
Meanwhile, the independent China Beige Book said manufacturing employment declined this month, as weak external demand weighed on key metrics. Industrial profits plunged in March, data out earlier this week showed. The figures were barely better than January-February’s virus-driven slump.
In any event, the market will take Thursday’s official PMIs at face value in lieu of “harder” data. The focus has now shifted away from China anyway, as market participants await the reopening of key western economies and ponder the prospects for COVID-19 therapeutics.
China completed another round of rate cuts over the past month, as the PBoC continues to provide incremental support, while fiscal policy looks set to be more stimulative going forward.
Oh, and in an interview published on Wednesday evening, Donald Trump told Reuters the pandemic is proof China “will do anything they can” to undermine him politically.
Asked what he may do to retaliate, Trump said “I can do a lot”.
From Reuters:
Asked whether he was considering the use of tariffs or even debt write-offs for China, Trump would not offer specifics. “There are many things I can do,” he said. “We’re looking for what happened.”
“China will do anything they can to have me lose this race,” said Trump. He said he believes Beijing wants his Democratic opponent, Joe Biden, to win the race to ease the pressure Trump has placed on China over trade and other issues.
“They’re constantly using public relations to try to make it like they’re innocent parties,” he said of Chinese officials.
He said the trade deal that he concluded with Chinese President Xi Jinping aimed at reducing chronic U.S. trade deficits with China had been “upset very badly” by the economic fallout from the virus.
A senior Trump administration official, speaking on condition of anonymity, said on Wednesday that an informal “truce” in the war of words that Trump and Xi essentially agreed to in a phone call in late March now appeared to be over.
