China’s economic recovery remained largely on track in September, PMI data out Wednesday suggested.
The official manufacturing gauge printed 51.5 for the month, ahead of consensus, which was looking for 51.3. The non-manufacturing gauge registered 55.9 versus expectations for 54.7.
Taken at face value (and what choice do you have?), this adds to recent evidence that the world’s second largest economy is poised to expand even as the rest of the world struggles to dig itself out of the worst slump in a century.
Wednesday’s PMIs come on the heels of data showing industrial company profits rose a fourth month in August. Despite the rebound, profits were still down more than 4% for the first eight months of 2020.
You’re reminded that activity data for August beat across the board, with retail sales managing their first gain since the onset of the crisis. That was a notable turning point. Analysts have expressed concern about domestic demand, which failed to keep pace with the rebound in factory output during the initial months of the recovery. In that context, the rise in retail sales was welcome news.
The PBoC has avoided the kind of “kitchen sink” stimulus adopted by its global peers, opting instead for more targeted measures to combat the crisis. The central bank has, of course, cut rates in 2020, but only gradually. Rates have remained unchanged on all key facilities for months.
Monetary policy divergence is one factor behind the strengthening yuan, which is also getting support from relative economic outperformance. Although the currency cooled a bit over the past week, it’s still headed for one of the best quarters on record.
And yet, risks abound. Donald Trump is still keen to turn the screws on Beijing. The “phase one” trade deal is nowhere near on track and the TikTok drama still isn’t resolved. The US is also cracking down on Semiconductor Manufacturing International, China’s top chipmaker.
There are problems on the home front, too. China Evergrande is wobbling and serves as a source of continual consternation, although it seems clear the heavily-indebted developer is too big to fail, especially considering China’s penchant for propping up enterprises that might threaten financial and/or social stability were they allowed to crumble.
China’s stock market will be shuttered for Golden Week from October 1 through 8. Leverage on Chinese exchanges dropped to the lowest since early August on Monday. This month was poised to see the first decline in margin debt since April.