Today’s Caixin China manufacturing PMI has disappointed because of strong official PMI data last week. Meanwhile, at the Boao Forum for Asia, Premier Li Qiang mentioned that the Chinese economy continued to improve in March.
So where is the disconnect?
The official PMI is tilted toward larger state-owned enterprises (SOEs), while the Caixin PMI is more focused on the export sector and small and midsize enterprises (SMEs). Apparently, the SMEs are still struggling to find their footings while the SOEs are recovering with policy assistance. This may help explain why the authority is calling for more support for the private sector and SMEs.
The official nonmanufacturing PMI surprised big on the upside last week. Such a surprise may have heightened the disappointment today toward the Caixin PMI. But note that the nonmanufacturing PMI was driven by construction activity, rather than a genuine services recovery. This is consistent with the ongoing rise in bank deposits and muted growth in retail sales.
After a marked improvement in January and February, new home sales looked like they continued to improve in March. And the improvement was across first-, second- and third-tier cities. That said, state-run developers continued to do better than private ones, who were reporting small year-on-year declines in sales. This divergence between state-owned and private developers is consistent with the divergence between the official and Caixin PMIs.
Land sales in 100 cities slowed in March, but again SOEs outperformed private developers. This is an important leading indicator for future property investment. It suggests that the private developers are still hesitant to commit, and a recovery in confidence takes time. Fortunately, the amount of land purchased is not part of the GDP calculation and thus won’t affect GDP growth in 2023.
To sum up, today’s Caixin PMI doesn’t actually disappoint when one considers its survey sample. The recovery in the official nonmanufacturing PMI was driven more by construction than genuine consumption. Property sales are improving, but land purchase figures suggest that private developers remain hesitant to commit.
More government efforts are required to support the private sector.
Hong Hao is chief economist at Grow Investment Group.
This commentary has been edited for length and clarity.
Contact editor Michael Bellart (michaelbellart@caixin.com)
The views and opinions expressed in this opinion section are those of the authors and do not necessarily reflect the editorial positions of Caixin Media.
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